Is HomeStreet Inc (NASDAQ:HMST) a healthy stock for your portfolio? Prominent investors are taking a pessimistic view. The number of long hedge fund positions stayed the same which is a slightly negative development in our experience
According to most investors, hedge funds are seen as worthless, old financial vehicles of yesteryear. While there are greater than 8000 funds with their doors open today, we hone in on the bigwigs of this group, close to 450 funds. It is estimated that this group has its hands on the majority of all hedge funds' total capital, and by tracking their best stock picks, we have determined a number of investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we've began to sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).
Equally as integral, bullish insider trading activity is another way to parse down the world of equities. There are a number of motivations for an insider to sell shares of his or her company, but only one, very clear reason why they would behave bullishly. Several academic studies have demonstrated the market-beating potential of this tactic if you understand where to look (learn more here).
With these "truths" under our belt, it's important to take a look at the recent action regarding HomeStreet Inc (NASDAQ:HMST).
At Q1's end, a total of 7 of the hedge funds we track were bullish in this stock, a change of 0% from one quarter earlier. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly.
When looking at the hedgies we track, Remy Trafelet's Trafelet Capital had the biggest position in HomeStreet Inc (NASDAQ:HMST), worth close to $11.8 million, comprising 6.6% of its total 13F portfolio. Coming in second is Pentwater Capital Management, managed by Matthew Halbower, which held a $5.4 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other hedge funds that hold long positions include Steven Owsley's Madison Street Partners, Amy Minella's Cardinal Capital and Jim Simons's Renaissance Technologies.
Due to the fact that HomeStreet Inc (NASDAQ:HMST) has experienced a declination in interest from hedge fund managers, it's easy to see that there was a specific group of hedgies that decided to sell off their full holdings heading into Q2. It's worth mentioning that Charles Davidson's Wexford Capital cut the largest investment of the "upper crust" of funds we track, worth an estimated $6.4 million in stock.. Mike Vranos's fund, Ellington, also cut its stock, about $0.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Bullish insider trading is particularly usable when the company we're looking at has seen transactions within the past six months. Over the latest 180-day time frame, HomeStreet Inc (NASDAQ:HMST) has experienced 4 unique insiders buying, and 6 insider sales (see the details of insider trades here).
With the returns demonstrated by Insider Monkey's strategies, everyday investors must always monitor hedge fund and insider trading activity, and HomeStreet Inc (NASDAQ:HMST) shareholders fit into this picture quite nicely.