We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Radian Group Inc (NYSE:RDN) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Radian Group Inc (NYSE:RDN) was in 29 hedge funds’ portfolios at the end of December. RDN investors should be aware of an increase in support from the world’s most elite money managers in recent months. There were 24 hedge funds in our database with RDN holdings at the end of the previous quarter. Our calculations also showed that RDN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing Radian Group Inc (NYSE:RDN).
How are hedge funds trading Radian Group Inc (NYSE:RDN)?
At Q4’s end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RDN over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Point72 Asset Management was the largest shareholder of Radian Group Inc (NYSE:RDN), with a stake worth $34.7 million reported as of the end of September. Trailing Point72 Asset Management was AQR Capital Management, which amassed a stake valued at $30.7 million. GLG Partners, EJF Capital, and Callodine Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to Radian Group Inc (NYSE:RDN), around 5.48% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, dishing out 2.56 percent of its 13F equity portfolio to RDN.
Consequently, some big names were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, established the most valuable position in Radian Group Inc (NYSE:RDN). Balyasny Asset Management had $12 million invested in the company at the end of the quarter. Carl Goldsmith and Scott Klein’s Beach Point Capital Management also initiated a $4.6 million position during the quarter. The following funds were also among the new RDN investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Ran Pang’s Quantamental Technologies, and Jinghua Yan’s TwinBeech Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Radian Group Inc (NYSE:RDN) but similarly valued. We will take a look at Life Storage, Inc. (NYSE:LSI), Empire State Realty Trust Inc (NYSE:ESRT), Silicon Laboratories (NASDAQ:SLAB), and Science Applications International Corp (NYSE:SAIC). This group of stocks’ market caps are similar to RDN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LSI | 20 | 217016 | 2 |
| ESRT | 18 | 115056 | 7 |
| SLAB | 26 | 87548 | 4 |
| SAIC | 27 | 298988 | 1 |
| Average | 22.75 | 179652 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $208 million in RDN’s case. Science Applications International Corp (NYSE:SAIC) is the most popular stock in this table. On the other hand Empire State Realty Trust Inc (NYSE:ESRT) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Radian Group Inc (NYSE:RDN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately RDN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RDN were disappointed as the stock returned -47.3% during the first two and a half months of 2020 (through March 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
