Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like 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 Ascena Retail Group Inc (NASDAQ:ASNA), Caleres Inc (NYSE:CAL), and Standard Motor Products, Inc. (NYSE:SMP) to get a better sense of its popularity.
Follow Redwood Trust Inc (NYSE:RWT)
Follow Redwood Trust Inc (NYSE:RWT)
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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With all of this in mind, we’re going to take a look at the latest action encompassing Redwood Trust, Inc. (NYSE:RWT).
What have hedge funds been doing with Redwood Trust, Inc. (NYSE:RWT)?
Heading into the fourth quarter of 2016, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 5 hedge funds held shares or bullish call options in RWT heading into this year. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Wallace Weitz’s Wallace R. Weitz & Co. has the biggest position in Redwood Trust, Inc. (NYSE:RWT), worth close to $85.5 million, accounting for 3.2% of its total 13F portfolio. Coming in second is Graham Capital Management, led by Kenneth Tropin, holding a $23.5 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions contain Renaissance Technologies, one of the largest hedge funds in the world, Israel Englander’s Millennium Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually cashed in their positions entirely. At the top of the heap, Mike Vranos’s Ellington cashed in the largest investment of all the hedgies followed by Insider Monkey, totaling an estimated $0.1 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund sold off about $0 million worth of shares.
Let’s now take a look at hedge fund activity in other stocks similar to Redwood Trust, Inc. (NYSE:RWT). These stocks are Ascena Retail Group Inc (NASDAQ:ASNA), Caleres Inc (NYSE:CAL), Standard Motor Products, Inc. (NYSE:SMP), and Transportadora de Gas del Sur SA (ADR) (NYSE:TGS). 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 |
|---|---|---|---|
| ASNA | 28 | 174589 | 5 |
| CAL | 17 | 55425 | -4 |
| SMP | 10 | 145200 | -1 |
| TGS | 6 | 20610 | -1 |
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $141 million in RWT’s case. Ascena Retail Group Inc (NASDAQ:ASNA) is the most popular stock in this table. On the other hand Transportadora de Gas del Sur SA (ADR) (NYSE:TGS) is the least popular one with only 6 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. In this regard ASNA might be a better candidate to consider taking a long position in.
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Disclosure: None
