Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Radian Group Inc (NYSE:RDN) to find out whether it was one of their high conviction long-term ideas.
Radian Group Inc (NYSE:RDN) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 22 hedge funds’ portfolios at the end of the third quarter of 2019. At the end of this article we will also compare RDN to other stocks including ViaSat, Inc. (NASDAQ:VSAT), Foot Locker, Inc. (NYSE:FL), and Avnet, Inc. (NASDAQ:AVT) to get a better sense of its popularity.
Video: Click the image to 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’ 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.
John Overdeck of Two Sigma Advisors
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the new hedge fund action surrounding Radian Group Inc (NYSE:RDN).
Hedge fund activity in Radian Group Inc (NYSE:RDN)
At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RDN over the last 17 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Point72 Asset Management was the largest shareholder of Radian Group Inc (NYSE:RDN), with a stake worth $50.8 million reported as of the end of September. Trailing Point72 Asset Management was AQR Capital Management, which amassed a stake valued at $25.5 million. GLG Partners, EJF Capital, 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 EJF Capital allocated the biggest weight to Radian Group Inc (NYSE:RDN), around 2.21% of its 13F portfolio. Ellington is also relatively very bullish on the stock, dishing out 0.75 percent of its 13F equity portfolio to RDN.
Due to the fact that Radian Group Inc (NYSE:RDN) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedgies who sold off their full holdings last quarter. Intriguingly, David E. Shaw’s D E Shaw cut the biggest stake of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $1.1 million in stock. Peter Seuss’s fund, Prana Capital Management, also dropped its stock, about $0.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Radian Group Inc (NYSE:RDN). We will take a look at ViaSat, Inc. (NASDAQ:VSAT), Foot Locker, Inc. (NYSE:FL), Avnet, Inc. (NASDAQ:AVT), and The Wendy’s Company (NASDAQ:WEN). 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 |
|---|---|---|---|
| VSAT | 27 | 1901555 | -1 |
| FL | 32 | 546398 | 0 |
| AVT | 28 | 678095 | 1 |
| WEN | 34 | 892985 | 10 |
| Average | 30.25 | 1004758 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $1005 million. That figure was $178 million in RDN’s case. The Wendy’s Company (NASDAQ:WEN) is the most popular stock in this table. On the other hand ViaSat, Inc. (NASDAQ:VSAT) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Radian Group Inc (NYSE:RDN) is even less popular than VSAT. Hedge funds clearly dropped the ball on RDN as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on RDN as the stock returned 13.1% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
