Were Hedge Funds Right About Buying Granite Point Mortgage Trust Inc. (GPMT)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Granite Point Mortgage Trust Inc. (NYSE:GPMT) and determine whether hedge funds skillfully traded this stock.

Granite Point Mortgage Trust Inc. (NYSE:GPMT) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that GPMT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Price of MFP Investors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the key hedge fund action surrounding Granite Point Mortgage Trust Inc. (NYSE:GPMT).

What have hedge funds been doing with Granite Point Mortgage Trust Inc. (NYSE:GPMT)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in GPMT a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

The largest stake in Granite Point Mortgage Trust Inc. (NYSE:GPMT) was held by Winton Capital Management, which reported holding $4.6 million worth of stock at the end of September. It was followed by D E Shaw with a $2.9 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to Granite Point Mortgage Trust Inc. (NYSE:GPMT), around 0.12% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to GPMT.

With a general bullishness amongst the heavyweights, specific money managers have jumped into Granite Point Mortgage Trust Inc. (NYSE:GPMT) headfirst. Citadel Investment Group, managed by Ken Griffin, assembled the largest position in Granite Point Mortgage Trust Inc. (NYSE:GPMT). Citadel Investment Group had $1.6 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also made a $0.4 million investment in the stock during the quarter. The other funds with brand new GPMT positions are Paul Tudor Jones’s Tudor Investment Corp, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Donald Sussman’s Paloma Partners.

Let’s also examine hedge fund activity in other stocks similar to Granite Point Mortgage Trust Inc. (NYSE:GPMT). These stocks are South Plains Financial, Inc. (NASDAQ:SPFI), Hometrust Bancshares Inc (NASDAQ:HTBI), Everi Holdings Inc (NYSE:EVRI), and XPEL Inc. (NASDAQ:XPEL). This group of stocks’ market valuations are closest to GPMT’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $14 million in GPMT’s case. Everi Holdings Inc (NYSE:EVRI) is the most popular stock in this table. On the other hand South Plains Financial, Inc. (NASDAQ:SPFI) is the least popular one with only 3 bullish hedge fund positions. Granite Point Mortgage Trust Inc. (NYSE:GPMT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on GPMT as the stock returned 41.6% during the second quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.