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Hedge Funds Are Nibbling On Starwood Property Trust, Inc. (STWD)

In this article we will check out the progression of hedge fund sentiment towards Starwood Property Trust, Inc. (NYSE:STWD) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Starwood Property Trust, Inc. (NYSE:STWD) an outstanding investment right now? The best stock pickers are getting more bullish. The number of bullish hedge fund positions advanced by 2 recently. Our calculations also showed that STWD 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.

If you’d ask most market participants, hedge funds are assumed to be slow, outdated financial vehicles of years past. While there are greater than 8000 funds in operation at present, Our experts look at the masters of this club, approximately 850 funds. These money managers administer the majority of the hedge fund industry’s total asset base, and by paying attention to their best picks, Insider Monkey has deciphered various investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the recent hedge fund action encompassing Starwood Property Trust, Inc. (NYSE:STWD).

Hedge fund activity in Starwood Property Trust, Inc. (NYSE:STWD)

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in STWD a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is STWD A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Cardinal Capital, managed by Amy Minella, holds the biggest position in Starwood Property Trust, Inc. (NYSE:STWD). Cardinal Capital has a $27.9 million position in the stock, comprising 1.4% of its 13F portfolio. The second most bullish fund manager is Waterfront Capital Partners, managed by Eduardo Abush, which holds a $13.9 million position; 1.7% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish consist of John Overdeck and David Siegel’s Two Sigma Advisors, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Birch Run Capital allocated the biggest weight to Starwood Property Trust, Inc. (NYSE:STWD), around 2.75% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, designating 1.71 percent of its 13F equity portfolio to STWD.

As one would reasonably expect, specific money managers were breaking ground themselves. Forward Management, managed by J. Alan Reid, Jr., created the most valuable position in Starwood Property Trust, Inc. (NYSE:STWD). Forward Management had $2.7 million invested in the company at the end of the quarter. Gregg Moskowitz’s Interval Partners also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Donald Sussman’s Paloma Partners, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s go over hedge fund activity in other stocks similar to Starwood Property Trust, Inc. (NYSE:STWD). These stocks are Performance Food Group Company (NYSE:PFGC), Harley-Davidson, Inc. (NYSE:HOG), Carter’s, Inc. (NYSE:CRI), and Descartes Systems Group (NASDAQ:DSGX). All of these stocks’ market caps are closest to STWD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PFGC 29 189889 -2
HOG 17 88189 -2
CRI 23 149581 2
DSGX 10 103626 -2
Average 19.75 132821 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $97 million in STWD’s case. Performance Food Group Company (NYSE:PFGC) is the most popular stock in this table. On the other hand Descartes Systems Group (NASDAQ:DSGX) is the least popular one with only 10 bullish hedge fund positions. Starwood Property Trust, Inc. (NYSE:STWD) is not the most popular stock in this group but hedge fund interest is still above 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on STWD as the stock returned 48.8% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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