Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Starwood Property Trust, Inc. (NYSE:STWD) and see how the stock is affected by the recent hedge fund activity.
Is Starwood Property Trust, Inc. (NYSE:STWD) an excellent investment now? Hedge funds are becoming more confident. The number of long hedge fund positions advanced by 4 lately. Our calculations also showed that STWD 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.
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John Overdeck of Two Sigma Advisors
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What have hedge funds been doing with Starwood Property Trust, Inc. (NYSE:STWD)?
Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards STWD over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Cardinal Capital held the most valuable stake in Starwood Property Trust, Inc. (NYSE:STWD), which was worth $39.5 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $38.8 million worth of shares. Clough Capital Partners, Waterfront Capital Partners, and Renaissance Technologies 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 Clough Capital Partners allocated the biggest weight to Starwood Property Trust, Inc. (NYSE:STWD), around 2.51% of its 13F portfolio. Birch Run Capital is also relatively very bullish on the stock, earmarking 2.19 percent of its 13F equity portfolio to STWD.
As aggregate interest increased, specific money managers were leading the bulls’ herd. Renaissance Technologies created the largest position in Starwood Property Trust, Inc. (NYSE:STWD). Renaissance Technologies had $11.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $4.5 million position during the quarter. The other funds with brand new STWD positions are Richard S. Pzena’s Pzena Investment Management, David E. Shaw’s D E Shaw, and Alec Litowitz and Ross Laser’s Magnetar Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Starwood Property Trust, Inc. (NYSE:STWD) but similarly valued. We will take a look at Algonquin Power & Utilities Corp. (NYSE:AQN), Bruker Corporation (NASDAQ:BRKR), MongoDB, Inc. (NASDAQ:MDB), and Xerox Holdings Corporation (NYSE:XRX). All of these stocks’ market caps are similar to STWD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AQN | 15 | 211065 | 6 |
| BRKR | 21 | 272235 | -6 |
| MDB | 29 | 526751 | -5 |
| XRX | 32 | 1169230 | 4 |
| Average | 24.25 | 544820 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $545 million. That figure was $158 million in STWD’s case. Xerox Holdings Corporation (NYSE:XRX) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 15 bullish hedge fund positions. Starwood Property Trust, Inc. (NYSE:STWD) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately STWD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); STWD investors were disappointed as the stock returned 1.2% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
