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Hedge Funds Are Getting More Bullish On Radian Group Inc (RDN)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Radian Group Inc (NYSE:RDN) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is Radian Group Inc (NYSE:RDN) a superb investment now? Money managers were taking an optimistic view. The number of bullish hedge fund positions inched up by 5 lately. Radian Group Inc (NYSE:RDN) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that RDN isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s review the fresh hedge fund action surrounding Radian Group Inc (NYSE:RDN).

Hedge fund activity in Radian Group Inc (NYSE:RDN)

At the end of the second quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in RDN a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Rima Senvest Management, managed by Richard Mashaal, holds the number one position in Radian Group Inc (NYSE:RDN). Rima Senvest Management has a $36.9 million position in the stock, comprising 2.3% of its 13F portfolio. Coming in second is Point72 Asset Management, managed by Steve Cohen, which holds a $22.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism consist of James Morrow’s Callodine Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to Radian Group Inc (NYSE:RDN), around 10.84% of its 13F portfolio. Sonic Capital is also relatively very bullish on the stock, setting aside 2.32 percent of its 13F equity portfolio to RDN.

Now, key hedge funds have jumped into Radian Group Inc (NYSE:RDN) headfirst. Azora Capital, managed by Ravi Chopra, initiated the most outsized position in Radian Group Inc (NYSE:RDN). Azora Capital had $5.3 million invested in the company at the end of the quarter. Rob Citrone’s Discovery Capital Management also made a $3.1 million investment in the stock during the quarter. The following funds were also among the new RDN investors: Gregg Moskowitz’s Interval Partners, Michael Gelband’s ExodusPoint Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Radian Group Inc (NYSE:RDN) but similarly valued. We will take a look at JetBlue Airways Corporation (NASDAQ:JBLU), Safehold Inc. (NYSE:SAFE), Eagle Materials, Inc. (NYSE:EXP), Verint Systems Inc. (NASDAQ:VRNT), Lexington Realty Trust (NYSE:LXP), Karuna Therapeutics, Inc. (NASDAQ:KRTX), and Fate Therapeutics Inc (NASDAQ:FATE). This group of stocks’ market caps are similar to RDN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JBLU 28 131834 -8
SAFE 7 7836 2
EXP 41 428808 7
VRNT 25 333301 8
LXP 10 43913 0
KRTX 16 177325 0
FATE 36 985557 12
Average 23.3 301225 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $301 million. That figure was $191 million in RDN’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand Safehold Inc. (NYSE:SAFE) is the least popular one with only 7 bullish hedge fund positions. Radian Group Inc (NYSE:RDN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RDN is 78.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately RDN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RDN were disappointed as the stock returned 0.4% 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.