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 Walker & Dunlop Inc. (NYSE:WD) and determine whether hedge funds skillfully traded this stock.
Is Walker & Dunlop Inc. (NYSE:WD) a cheap investment right now? Hedge funds were taking a bearish view. The number of bullish hedge fund bets fell by 6 recently. Our calculations also showed that WD 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.
Today there are dozens of signals investors can use to appraise publicly traded companies. Two of the best signals are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the best investment managers can outpace the broader indices by a solid amount (see the details here).
Chuck Royce of Royce & Associates
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let's view the new hedge fund action regarding Walker & Dunlop Inc. (NYSE:WD).
How are hedge funds trading Walker & Dunlop Inc. (NYSE:WD)?
At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WD over the last 18 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Walker & Dunlop Inc. (NYSE:WD) was held by Sabrepoint Capital, which reported holding $11.1 million worth of stock at the end of September. It was followed by Royce & Associates with a $10.7 million position. Other investors bullish on the company included No Street Capital, Alyeska Investment Group, and AQR Capital Management. In terms of the portfolio weights assigned to each position Sabrepoint Capital allocated the biggest weight to Walker & Dunlop Inc. (NYSE:WD), around 4.49% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, designating 1.92 percent of its 13F equity portfolio to WD.
Since Walker & Dunlop Inc. (NYSE:WD) has experienced bearish sentiment from the smart money, we can see that there lies a certain "tier" of fund managers that elected to cut their full holdings in the first quarter. At the top of the heap, Bill Miller's Miller Value Partners dropped the biggest position of all the hedgies tracked by Insider Monkey, comprising close to $9.6 million in stock. Israel Englander's fund, Millennium Management, also cut its stock, about $3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 6 funds in the first quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Walker & Dunlop Inc. (NYSE:WD) but similarly valued. These stocks are MACOM Technology Solutions Holdings Inc (NASDAQ:MTSI), PRA Group, Inc. (NASDAQ:PRAA), Twist Bioscience Corporation (NASDAQ:TWST), and Knowles Corp (NYSE:KN). This group of stocks' market valuations are similar to WD's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTSI,16,153392,-2 PRAA,14,51314,2 TWST,16,216481,1 KN,20,205594,-9 Average,16.5,156695,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $157 million. That figure was $53 million in WD's case. Knowles Corp (NYSE:KN) is the most popular stock in this table. On the other hand PRA Group, Inc. (NASDAQ:PRAA) is the least popular one with only 14 bullish hedge fund positions. Walker & Dunlop Inc. (NYSE:WD) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately WD wasn't nearly as popular as these 10 stocks and hedge funds that were betting on WD were disappointed as the stock returned 24.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.