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Did Hedge Funds Drop The Ball On Mr. Cooper Group Inc. (COOP) ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Mr. Cooper Group Inc. (NASDAQ:COOP).

Is Mr. Cooper Group Inc. (NASDAQ:COOP) a bargain? Hedge funds are buying. The number of bullish hedge fund bets inched up by 1 lately. Our calculations also showed that COOP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). COOP was in 24 hedge funds’ portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with COOP holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Howard Marks of Oaktree Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the recent hedge fund action encompassing Mr. Cooper Group Inc. (NASDAQ:COOP).

What have hedge funds been doing with Mr. Cooper Group Inc. (NASDAQ:COOP)?

At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in COOP over the last 17 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

COOP_dec2019

The largest stake in Mr. Cooper Group Inc. (NASDAQ:COOP) was held by Diamond Hill Capital, which reported holding $90.3 million worth of stock at the end of September. It was followed by Greywolf Capital Management with a $56.8 million position. Other investors bullish on the company included Rubric Capital Management, Serengeti Asset Management, and Oaktree Capital Management. In terms of the portfolio weights assigned to each position Greywolf Capital Management allocated the biggest weight to Mr. Cooper Group Inc. (NASDAQ:COOP), around 31.17% of its 13F portfolio. Serengeti Asset Management is also relatively very bullish on the stock, dishing out 12.9 percent of its 13F equity portfolio to COOP.

As one would reasonably expect, specific money managers were breaking ground themselves. Inherent Group, managed by Tony Davis, created the most outsized position in Mr. Cooper Group Inc. (NASDAQ:COOP). Inherent Group had $9.8 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $1.6 million position during the quarter. The other funds with new positions in the stock are Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Jonathan Soros’s JS Capital, and Ronald Hua’s Qtron Investments.

Let’s now review hedge fund activity in other stocks similar to Mr. Cooper Group Inc. (NASDAQ:COOP). These stocks are ACCO Brands Corporation (NYSE:ACCO), HeadHunter Group PLC (NASDAQ:HHR), iHeartMedia, Inc. (NASDAQ:IHRT), and 3D Systems Corporation (NYSE:DDD). This group of stocks’ market caps resemble COOP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACCO 19 54847 3
HHR 8 73959 -4
IHRT 26 178664 26
DDD 12 39120 1
Average 16.25 86648 6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $285 million in COOP’s case. iHeartMedia, Inc. (NASDAQ:IHRT) is the most popular stock in this table. On the other hand HeadHunter Group PLC (NASDAQ:HHR) is the least popular one with only 8 bullish hedge fund positions. Mr. Cooper Group Inc. (NASDAQ:COOP) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on COOP as the stock returned 26.6% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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