With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was PennyMac Financial Services Inc (NYSE:PFSI).
Is PennyMac Financial Services Inc (NYSE:PFSI) a buy, sell, or hold? The best stock pickers are selling. The number of bullish hedge fund positions dropped by 1 lately. Our calculations also showed that PFSI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Reeder of PAR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the latest hedge fund action encompassing PennyMac Financial Services Inc (NYSE:PFSI).
How are hedge funds trading PennyMac Financial Services Inc (NYSE:PFSI)?
Heading into the fourth quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PFSI over the last 17 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, PAR Capital Management was the largest shareholder of PennyMac Financial Services Inc (NYSE:PFSI), with a stake worth $28.9 million reported as of the end of September. Trailing PAR Capital Management was Rima Senvest Management, which amassed a stake valued at $24.2 million. Renaissance Technologies, Basswood Capital, and Millennium 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 Rima Senvest Management allocated the biggest weight to PennyMac Financial Services Inc (NYSE:PFSI), around 2.09% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, setting aside 1.07 percent of its 13F equity portfolio to PFSI.
Since PennyMac Financial Services Inc (NYSE:PFSI) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedge funds that decided to sell off their entire stakes last quarter. Intriguingly, John Khoury’s Long Pond Capital said goodbye to the largest stake of all the hedgies tracked by Insider Monkey, valued at about $16.8 million in stock, and Leon Cooperman’s Omega Advisors was right behind this move, as the fund dropped about $6.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as PennyMac Financial Services Inc (NYSE:PFSI) but similarly valued. These stocks are Granite Real Estate Investment Trust (NYSE:GRP), Xenia Hotels & Resorts Inc (NYSE:XHR), Hutchison China MediTech Limited (NASDAQ:HCM), and YETI Holdings, Inc. (NYSE:YETI). This group of stocks’ market valuations resemble PFSI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GRP | 11 | 81035 | 0 |
| XHR | 8 | 20048 | -4 |
| HCM | 10 | 14449 | -13 |
| YETI | 11 | 46603 | -1 |
| Average | 10 | 40534 | -4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $105 million in PFSI’s case. Granite Real Estate Investment Trust (NYSE:GRP) is the most popular stock in this table. On the other hand Xenia Hotels & Resorts Inc (NYSE:XHR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks PennyMac Financial Services Inc (NYSE:PFSI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on PFSI as the stock returned 13.4% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
