It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Radian Group Inc (NYSE:RDN).
Radian Group Inc (NYSE:RDN) investors should pay attention to an increase in hedge fund interest in recent months. RDN was in 22 hedge funds’ portfolios at the end of June. There were 19 hedge funds in our database with RDN positions at the end of the previous quarter. Our calculations also showed that RDN isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are several formulas market participants employ to value their holdings. Two of the most under-the-radar formulas are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the best investment managers can outpace their index-focused peers by a very impressive margin (see the details here).
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the new hedge fund action surrounding Radian Group Inc (NYSE:RDN).
Hedge fund activity in Radian Group Inc (NYSE:RDN)
At Q2’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from the first quarter of 2019. On the other hand, there were a total of 20 hedge funds with a bullish position in RDN a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in Radian Group Inc (NYSE:RDN) was held by Millennium Management, which reported holding $44.9 million worth of stock at the end of March. It was followed by Point72 Asset Management with a $40.9 million position. Other investors bullish on the company included GLG Partners, Citadel Investment Group, and AQR Capital Management.
As industrywide interest jumped, key money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the biggest position in Radian Group Inc (NYSE:RDN). Arrowstreet Capital had $6.6 million invested in the company at the end of the quarter. Emanuel J. Friedman’s EJF Capital also initiated a $3.4 million position during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, David Harding’s Winton Capital Management, and Peter Seuss’s Prana Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Radian Group Inc (NYSE:RDN) but similarly valued. These stocks are GDS Holdings Limited (NASDAQ:GDS), Equitrans Midstream Corporation (NYSE:ETRN), Nexstar Media Group, Inc. (NASDAQ:NXST), and Jabil Inc. (NYSE:JBL). This group of stocks’ market caps match RDN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GDS | 28 | 1106492 | -5 |
| ETRN | 16 | 551346 | -3 |
| NXST | 40 | 1117748 | 9 |
| JBL | 26 | 315043 | 6 |
| Average | 27.5 | 772657 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $773 million. That figure was $217 million in RDN’s case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand Equitrans Midstream Corporation (NYSE:ETRN) is the least popular one with only 16 bullish hedge fund positions. Radian Group Inc (NYSE:RDN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately RDN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RDN investors were disappointed as the stock returned 0% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
