Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 18.7% compared to 12.1%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Radian Group Inc (NYSE:RDN) investors should be aware of a decrease in hedge fund sentiment in recent months. RDN was in 19 hedge funds’ portfolios at the end of March. There were 24 hedge funds in our database with RDN holdings at the end of the previous quarter. Our calculations also showed that rdn isn’t among the 30 most popular stocks among hedge funds.
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 40 percentage points since May 2014 through May 30, 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.
Noam Gottesman, GLG Partners
Let’s go over the recent hedge fund action encompassing Radian Group Inc (NYSE:RDN).
Hedge fund activity in Radian Group Inc (NYSE:RDN)
Heading into the second quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in RDN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, GLG Partners was the largest shareholder of Radian Group Inc (NYSE:RDN), with a stake worth $39.9 million reported as of the end of March. Trailing GLG Partners was Millennium Management, which amassed a stake valued at $34 million. Point72 Asset Management, AQR Capital Management, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Radian Group Inc (NYSE:RDN) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few money managers that slashed their full holdings heading into Q3. At the top of the heap, Don Morgan’s Brigade Capital sold off the largest stake of the 700 funds followed by Insider Monkey, comprising close to $8.4 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dumped its stock, about $4.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 5 funds heading into Q3.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Radian Group Inc (NYSE:RDN) but similarly valued. We will take a look at Cyberark Software Ltd (NASDAQ:CYBR), New Jersey Resources Corp (NYSE:NJR), Chegg Inc (NYSE:CHGG), and Ingevity Corporation (NYSE:NGVT). This group of stocks’ market caps are closest to RDN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CYBR | 28 | 435159 | 8 |
| NJR | 11 | 96141 | -7 |
| CHGG | 36 | 511609 | 15 |
| NGVT | 23 | 112069 | 6 |
| Average | 24.5 | 288745 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $289 million. That figure was $193 million in RDN’s case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand New Jersey Resources Corp (NYSE:NJR) is the least popular one with only 11 bullish hedge fund positions. Radian Group Inc (NYSE:RDN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on RDN as the stock returned 8.3% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
