Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards PennyMac Financial Services Inc (NYSE:PFSI) changed recently.
Is PennyMac Financial Services Inc (NYSE:PFSI) a buy here? Hedge funds were reducing their bets on the stock. The number of bullish hedge fund positions were cut by 4 recently. PennyMac Financial Services Inc (NYSE:PFSI) was in 25 hedge funds’ portfolios at the end of March. The all time high for this statistic is 31. Our calculations also showed that PFSI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 29 hedge funds in our database with PFSI holdings at the end of December.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Charles Clough of Clough Capital Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to view the recent hedge fund action regarding PennyMac Financial Services Inc (NYSE:PFSI).
Do Hedge Funds Think PFSI Is A Good Stock To Buy Now?
At the end of March, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the fourth quarter of 2020. By comparison, 24 hedge funds held shares or bullish call options in PFSI a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Rima Senvest Management was the largest shareholder of PennyMac Financial Services Inc (NYSE:PFSI), with a stake worth $132.5 million reported as of the end of March. Trailing Rima Senvest Management was Basswood Capital, which amassed a stake valued at $128.7 million. MFN Partners, Clough Capital Partners, and PAR 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 OCO Capital Partners allocated the biggest weight to PennyMac Financial Services Inc (NYSE:PFSI), around 8.08% of its 13F portfolio. MFN Partners is also relatively very bullish on the stock, earmarking 7.49 percent of its 13F equity portfolio to PFSI.
Seeing as PennyMac Financial Services Inc (NYSE:PFSI) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few fund managers that elected to cut their entire stakes last quarter. Interestingly, George Soros’s Soros Fund Management dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling about $28.4 million in stock, and David Rosen’s Rubric Capital Management was right behind this move, as the fund dropped about $17.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to PennyMac Financial Services Inc (NYSE:PFSI). These stocks are Silgan Holdings Inc. (NASDAQ:SLGN), The Chemours Company (NYSE:CC), Clean Harbors Inc (NYSE:CLH), Select Medical Holdings Corporation (NYSE:SEM), frontdoor, inc. (NASDAQ:FTDR), HUYA Inc. (NYSE:HUYA), and China Biologic Products Holdings Inc (NASDAQ:CBPO). This group of stocks’ market valuations are closest to PFSI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SLGN | 17 | 246378 | 1 |
| CC | 27 | 544703 | -3 |
| CLH | 27 | 383596 | 5 |
| SEM | 22 | 179000 | 7 |
| FTDR | 36 | 763384 | -1 |
| HUYA | 13 | 335848 | 1 |
| CBPO | 15 | 1001472 | -1 |
| Average | 22.4 | 493483 | 1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $493 million. That figure was $556 million in PFSI’s case. frontdoor, inc. (NASDAQ:FTDR) is the most popular stock in this table. On the other hand HUYA Inc. (NYSE:HUYA) is the least popular one with only 13 bullish hedge fund positions. PennyMac Financial Services Inc (NYSE:PFSI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PFSI is 51.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and beat the market again by 6.7 percentage points. Unfortunately PFSI wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PFSI were disappointed as the stock returned -9% since the end of March (through 7/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Pnmac Holdings Inc. (NYSE:PFSI)
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Disclosure: None. This article was originally published at Insider Monkey.
