We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of PennyMac Financial Services Inc (NYSE:PFSI).
PennyMac Financial Services Inc (NYSE:PFSI) has experienced an increase in hedge fund interest of late. Our calculations also showed that PFSI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are several tools stock market investors can use to value publicly traded companies. A couple of the best tools are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can outclass the market by a superb amount (see the details here).
Paul Reeder of PAR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the latest hedge fund action surrounding PennyMac Financial Services Inc (NYSE:PFSI).
What does smart money think about PennyMac Financial Services Inc (NYSE:PFSI)?
At Q4’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PFSI over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in PennyMac Financial Services Inc (NYSE:PFSI), which was worth $34.2 million at the end of the third quarter. On the second spot was PAR Capital Management which amassed $32.2 million worth of shares. Rima Senvest Management, Arrowstreet Capital, and Basswood Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Rima Senvest Management allocated the biggest weight to PennyMac Financial Services Inc (NYSE:PFSI), around 1.7% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, setting aside 0.63 percent of its 13F equity portfolio to PFSI.
As industrywide interest jumped, some big names were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, established the largest position in PennyMac Financial Services Inc (NYSE:PFSI). Citadel Investment Group had $0.8 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $0.7 million position during the quarter. The other funds with brand new PFSI positions are Donald Sussman’s Paloma Partners and Peter Muller’s PDT Partners.
Let’s now review hedge fund activity in other stocks similar to PennyMac Financial Services Inc (NYSE:PFSI). We will take a look at WD-40 Company (NASDAQ:WDFC), Franklin Electric Co. (NASDAQ:FELE), PROS Holdings, Inc. (NYSE:PRO), and Advanced Drainage Systems, Inc. (NYSE:WMS). This group of stocks’ market values match PFSI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WDFC | 17 | 221684 | -2 |
| FELE | 14 | 266404 | 2 |
| PRO | 20 | 272799 | -7 |
| WMS | 25 | 486613 | -2 |
| Average | 19 | 311875 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $312 million. That figure was $135 million in PFSI’s case. Advanced Drainage Systems, Inc. (NYSE:WMS) is the most popular stock in this table. On the other hand Franklin Electric Co. (NASDAQ:FELE) is the least popular one with only 14 bullish hedge fund positions. PennyMac Financial Services Inc (NYSE:PFSI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately PFSI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PFSI investors were disappointed as the stock returned -34.8% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
