Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Two Harbors Investment Corp (NYSE:TWO).
Is Two Harbors Investment Corp (NYSE:TWO) a splendid investment right now? Money managers are getting more optimistic. The number of bullish hedge fund bets inched up by 3 recently. TWO was in 21 hedge funds’ portfolios at the end of the third quarter of 2016. There were 18 hedge funds in our database with TWO holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Black Stone Minerals LP (NYSE:BSM), Integra Lifesciences Holdings Corp (NASDAQ:IART), and Urban Edge Properties (NYSE:UE) to gather more data points.
Follow Two Harbors Investment Corp. (NYSE:TWO)
Follow Two Harbors Investment Corp. (NYSE:TWO)
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.
Aleksandr Bagri/Shutterstock.com
How are hedge funds trading Two Harbors Investment Corp (NYSE:TWO)?
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a gain of 17% from one quarter earlier. Hedge fund ownership has remained stable over the last year, showing that many funds like it as a long-term holding. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Whitebox Advisors, managed by Andy Redleaf, holds the largest position in Two Harbors Investment Corp (NYSE:TWO). Whitebox Advisors has a $20.8 million position in the stock. The second most bullish fund manager is Charles Clough of Clough Capital Partners, with an $18.9 million position; 1% of its 13F portfolio is allocated to the company. Some other peers with similar optimism encompass Ken Griffin’s Citadel Investment Group, Jim Simons’ Renaissance Technologies and Israel Englander’s Millennium Management.
As one would reasonably expect, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the biggest position in Two Harbors Investment Corp (NYSE:TWO). Arrowstreet Capital had $2.1 million invested in the company at the end of the quarter. George Hall’s Clinton Group also initiated a $0.2 million position during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser’s Magnetar Capital, Ken Fisher’s Fisher Asset Management, and Christopher C. Grisanti’s Grisanti Brown & Partners.
Let’s now take a look at hedge fund activity in other stocks similar to Two Harbors Investment Corp (NYSE:TWO). These stocks are Black Stone Minerals LP (NYSE:BSM), Integra Lifesciences Holdings Corp (NASDAQ:IART), Urban Edge Properties (NYSE:UE), and CLARCOR Inc. (NYSE:CLC). This group of stocks’ market valuations resemble TWO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BSM | 7 | 21323 | 0 |
| IART | 19 | 132579 | 3 |
| UE | 8 | 15485 | 3 |
| CLC | 12 | 108660 | -2 |
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $111 million in TWO’s case. Integra Lifesciences Holdings Corp (NASDAQ:IART) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Two Harbors Investment Corp (NYSE:TWO) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None
