Hedge Funds Are Buying Redwood Trust, Inc. (RWT)

Redwood Trust, Inc. (NYSE:RWT) investors should pay attention to an increase in support from the world’s most elite money managers lately.

To the average investor, there are plenty of indicators investors can use to analyze their holdings. A couple of the best are hedge fund and insider trading movement. At Insider Monkey, our studies have shown that, historically, those who follow the top picks of the best fund managers can outperform the market by a significant amount (see just how much).

Just as integral, positive insider trading activity is a second way to break down the investments you’re interested in. There are a number of motivations for an executive to cut shares of his or her company, but just one, very simple reason why they would buy. Various empirical studies have demonstrated the market-beating potential of this strategy if you understand where to look (learn more here).

Now, it’s important to take a glance at the recent action surrounding Redwood Trust, Inc. (NYSE:RWT).

How have hedgies been trading Redwood Trust, Inc. (NYSE:RWT)?

In preparation for this quarter, a total of 12 of the hedge funds we track were long in this stock, a change of 20% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably.

Of the funds we track, Wallace Weitz’s Wallace R. Weitz & Co. had the largest position in Redwood Trust, Inc. (NYSE:RWT), worth close to $112.6 million, comprising 4.6% of its total 13F portfolio. Coming in second is John Paulson of Paulson & Co, with a $27.5 million position; 0.2% of its 13F portfolio is allocated to the company. Other hedge funds with similar optimism include Andrew Sandler’s Sandler Capital Management, Wallace Weitz’s Wallace R. Weitz & Co. and Jim Simons’s Renaissance Technologies.

As one would reasonably expect, some big names have jumped into Redwood Trust, Inc. (NYSE:RWT) headfirst. Paulson & Co, managed by John Paulson, created the largest position in Redwood Trust, Inc. (NYSE:RWT). Paulson & Co had 27.5 million invested in the company at the end of the quarter. Andrew Sandler’s Sandler Capital Management also made a $21.4 million investment in the stock during the quarter. The following funds were also among the new RWT investors: Wallace Weitz’s Wallace R. Weitz & Co., Jim Simons’s Renaissance Technologies, and Israel Englander’s Millennium Management.

How are insiders trading Redwood Trust, Inc. (NYSE:RWT)?

Insider trading activity, especially when it’s bullish, is most useful when the company in question has seen transactions within the past half-year. Over the last half-year time period, Redwood Trust, Inc. (NYSE:RWT) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s go over hedge fund and insider activity in other stocks similar to Redwood Trust, Inc. (NYSE:RWT). These stocks are Colony Financial Inc (NYSE:CLNY), American Capital Mortgage Investment Crp (NASDAQ:MTGE), Spirit Realty Capital Inc (NYSE:SRC), Brandywine Realty Trust (NYSE:BDN), and PS Business Parks Inc (NYSE:PSB). This group of stocks are in the reit – diversified industry and their market caps are similar to RWT’s market cap.

With the returns exhibited by the aforementioned time-tested strategies, retail investors should always monitor hedge fund and insider trading activity, and Redwood Trust, Inc. (NYSE:RWT) is no exception.

Click here to learn why you should track hedge funds