Is Redwood Trust, Inc. (NYSE:RWT) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Redwood Trust, Inc. (NYSE:RWT) has experienced a decrease in hedge fund sentiment of late. RWT was in 13 hedge funds’ portfolios at the end of the second quarter of 2019. There were 15 hedge funds in our database with RWT holdings at the end of the previous quarter. Our calculations also showed that RWT isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are a lot of gauges market participants employ to value stocks. Some of the most innovative gauges are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the top hedge fund managers can outpace the S&P 500 by a significant margin (see the details here).
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to go over the key hedge fund action encompassing Redwood Trust, Inc. (NYSE:RWT).
What have hedge funds been doing with Redwood Trust, Inc. (NYSE:RWT)?
Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RWT over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Wallace R. Weitz & Co. was the largest shareholder of Redwood Trust, Inc. (NYSE:RWT), with a stake worth $57 million reported as of the end of March. Trailing Wallace R. Weitz & Co. was Renaissance Technologies, which amassed a stake valued at $11.8 million. Shoals Capital Management, Ellington, and Interval Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Redwood Trust, Inc. (NYSE:RWT) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds who sold off their full holdings in the second quarter. It’s worth mentioning that Emanuel J. Friedman’s EJF Capital said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, worth close to $9.8 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 total hedge fund interest was cut by 2 funds in the second quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Redwood Trust, Inc. (NYSE:RWT) but similarly valued. We will take a look at FBL Financial Group, Inc. (NYSE:FFG), Cambrex Corporation (NYSE:CBM), PriceSmart, Inc. (NASDAQ:PSMT), and Instructure, Inc. (NYSE:INST). All of these stocks’ market caps match RWT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FFG | 7 | 12886 | 0 |
| CBM | 12 | 30487 | -1 |
| PSMT | 15 | 60518 | 5 |
| INST | 21 | 491235 | -3 |
| Average | 13.75 | 148782 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $149 million. That figure was $98 million in RWT’s case. Instructure, Inc. (NYSE:INST) is the most popular stock in this table. On the other hand FBL Financial Group, Inc. (NYSE:FFG) is the least popular one with only 7 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately RWT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RWT investors were disappointed as the stock returned 1% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
