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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Broadmark Realty Capital Inc. (NYSE:BRMK).
Broadmark Realty Capital Inc. (NYSE:BRMK) was in 11 hedge funds’ portfolios at the end of September. The all time high for this statistics is 17. BRMK has experienced an increase in enthusiasm from smart money lately. There were 8 hedge funds in our database with BRMK holdings at the end of June. Our calculations also showed that BRMK isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to go over the recent hedge fund action encompassing Broadmark Realty Capital Inc. (NYSE:BRMK).
Do Hedge Funds Think BRMK Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BRMK over the last 21 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Farallon Capital was the largest shareholder of Broadmark Realty Capital Inc. (NYSE:BRMK), with a stake worth $70.7 million reported as of the end of September. Trailing Farallon Capital was Farallon Capital, which amassed a stake valued at $23.6 million. BlueCrest Capital Mgmt., First Pacific Advisors LLC, and Farallon 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 Farallon Capital allocated the biggest weight to Broadmark Realty Capital Inc. (NYSE:BRMK), around 0.5% of its 13F portfolio. BlueCrest Capital Mgmt. is also relatively very bullish on the stock, designating 0.19 percent of its 13F equity portfolio to BRMK.
Consequently, some big names have been driving this bullishness. ExodusPoint Capital, managed by Michael Gelband, assembled the most valuable position in Broadmark Realty Capital Inc. (NYSE:BRMK). ExodusPoint Capital had $1.7 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $0.4 million position during the quarter. The other funds with brand new BRMK positions are Cliff Asness’s AQR Capital Management and D. E. Shaw’s D E Shaw.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Broadmark Realty Capital Inc. (NYSE:BRMK) but similarly valued. These stocks are Mesa Laboratories, Inc. (NASDAQ:MLAB), Nurix Therapeutics, Inc. (NASDAQ:NRIX), Weis Markets, Inc. (NYSE:WMK), Arbor Realty Trust, Inc. (NYSE:ABR), AMC Networks Inc (NASDAQ:AMCX), Frontline Ltd (NYSE:FRO), and WW International, Inc. (NASDAQ:WW). This group of stocks’ market valuations are closest to BRMK’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.9 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $86 million in BRMK’s case. AMC Networks Inc (NASDAQ:AMCX) is the most popular stock in this table. On the other hand Mesa Laboratories, Inc. (NASDAQ:MLAB) is the least popular one with only 8 bullish hedge fund positions. Broadmark Realty Capital Inc. (NYSE:BRMK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BRMK is 34.9. 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 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately BRMK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BRMK investors were disappointed as the stock returned 6.7% since the end of September (through 12/8) 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 2020.
Disclosure: None. This article was originally published at Insider Monkey.