Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Velocity Financial, Inc. (NYSE:VEL) based on that data.
Velocity Financial, Inc. (NYSE:VEL) shareholders have witnessed a decrease in enthusiasm from smart money of late. Velocity Financial, Inc. (NYSE:VEL) was in 7 hedge funds’ portfolios at the end of September. The all time high for this statistics is 8. There were 8 hedge funds in our database with VEL holdings at the end of June. Our calculations also showed that VEL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 66 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.
Phillip Gross of Adage Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Keeping this in mind we’re going to analyze the recent hedge fund action regarding Velocity Financial, Inc. (NYSE:VEL).
How have hedgies been trading Velocity Financial, Inc. (NYSE:VEL)?
At the end of September, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VEL over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Beach Point Capital Management was the largest shareholder of Velocity Financial, Inc. (NYSE:VEL), with a stake worth $10 million reported as of the end of September. Trailing Beach Point Capital Management was Adage Capital Management, which amassed a stake valued at $8.6 million. Alyeska Investment Group, Renaissance Technologies, 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 Beach Point Capital Management allocated the biggest weight to Velocity Financial, Inc. (NYSE:VEL), around 4.42% of its 13F portfolio. Adage Capital Management is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to VEL.
Judging by the fact that Velocity Financial, Inc. (NYSE:VEL) has faced declining sentiment from the smart money, we can see that there exists a select few money managers who were dropping their full holdings by the end of the third quarter. It’s worth mentioning that Donald Sussman’s Paloma Partners dropped the largest position of all the hedgies watched by Insider Monkey, totaling about $0.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also said goodbye to its stock, about $0.1 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to Velocity Financial, Inc. (NYSE:VEL). These stocks are Wayside Technology Group, Inc. (NASDAQ:WSTG), Partners Bancorp (NASDAQ:PTRS), Gritstone Oncology, Inc. (NASDAQ:GRTS), Arlington Asset Investment Corp (NYSE:AI), Cogent Biosciences (NASDAQ:UMRX), Almaden Minerals Ltd. (NYSE:AAU), and Luokung Technology Corp (NASDAQ:LKCO). This group of stocks’ market values are closest to VEL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WSTG | 3 | 7345 | 0 |
| PTRS | 1 | 88 | 0 |
| GRTS | 7 | 15279 | -5 |
| AI | 5 | 2209 | 0 |
| UMRX | 10 | 49323 | 8 |
| AAU | 3 | 3738 | 0 |
| LKCO | 1 | 217 | -1 |
| Average | 4.3 | 11171 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.3 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $20 million in VEL’s case. Cogent Biosciences (NASDAQ:UMRX) is the most popular stock in this table. On the other hand Partners Bancorp (NASDAQ:PTRS) is the least popular one with only 1 bullish hedge fund positions. Velocity Financial, Inc. (NYSE:VEL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VEL is 63.6. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on VEL as the stock returned 23.3% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.