Before we spend countless hours researching a company, we’d like to analyze what insiders, hedge funds and billionaire investors think of the stock first. We would like to do so because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Redwood Trust, Inc. (NYSE:RWT).
Hedge fund interest in Redwood Trust, Inc. (NYSE:RWT) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare RWT to other stocks including YETI Holdings, Inc. (NYSE:YETI), EnPro Industries, Inc. (NYSE:NPO), and McGrath RentCorp (NASDAQ:MGRC) to get a better sense of its popularity.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
Let’s review the latest hedge fund action surrounding Redwood Trust, Inc. (NYSE:RWT).
How are hedge funds trading Redwood Trust, Inc. (NYSE:RWT)?
At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in RWT a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Wallace R. Weitz & Co. held the most valuable stake in Redwood Trust, Inc. (NYSE:RWT), which was worth $42.4 million at the end of the fourth quarter. On the second spot was Shoals Capital Management which amassed $18.5 million worth of shares. Moreover, PEAK6 Capital Management, Citadel Investment Group, and Renaissance Technologies were also bullish on Redwood Trust, Inc. (NYSE:RWT), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Redwood Trust, Inc. (NYSE:RWT) has experienced bearish sentiment from hedge fund managers, we can see that there is a sect of money managers that decided to sell off their entire stakes heading into Q3. Intriguingly, Jonathan Lourie and Stuart Fiertz’s Cheyne Capital sold off the largest stake of the 700 funds monitored by Insider Monkey, valued at close to $4.8 million in stock, and Alec Litowitz and Ross Laser’s Magnetar Capital was right behind this move, as the fund dumped about $0.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Redwood Trust, Inc. (NYSE:RWT). We will take a look at YETI Holdings, Inc. (NYSE:YETI), EnPro Industries, Inc. (NYSE:NPO), McGrath RentCorp (NASDAQ:MGRC), and Silicon Motion Technology Corp. (NASDAQ:SIMO). This group of stocks’ market values match RWT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| YETI | 10 | 27704 | 10 |
| NPO | 15 | 117649 | -1 |
| MGRC | 23 | 119085 | 1 |
| SIMO | 17 | 194652 | 1 |
| Average | 16.25 | 114773 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $83 million in RWT’s case. McGrath RentCorp (NASDAQ:MGRC) is the most popular stock in this table. On the other hand YETI Holdings, Inc. (NYSE:YETI) is the least popular one with only 10 bullish hedge fund positions. Redwood Trust, Inc. (NYSE:RWT) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately RWT wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); RWT investors were disappointed as the stock returned 10.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
