Here is What Hedge Funds Think About Redwood Trust, Inc. (RWT)

Last year we predicted the arrival of the first US recession since 2009 and we told in advance 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 Redwood Trust, Inc. (NYSE:RWT).

Redwood Trust, Inc. (NYSE:RWT) was in 18 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 22. RWT has seen a decrease in enthusiasm from smart money of late. There were 22 hedge funds in our database with RWT holdings at the end of December. Our calculations also showed that RWT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Charles Clough of Clough Capital Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. With all of this in mind we’re going to take a gander at the key hedge fund action surrounding Redwood Trust, Inc. (NYSE:RWT).

Do Hedge Funds Think RWT Is A Good Stock To Buy Now?

At first quarter’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in RWT a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is RWT A Good Stock To Buy?

Among these funds, Adage Capital Management held the most valuable stake in Redwood Trust, Inc. (NYSE:RWT), which was worth $17 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $15.9 million worth of shares. Citadel Investment Group, Millennium Management, and Renaissance Technologies 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 Gratia Capital allocated the biggest weight to Redwood Trust, Inc. (NYSE:RWT), around 1.04% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, earmarking 0.28 percent of its 13F equity portfolio to RWT.

Since Redwood Trust, Inc. (NYSE:RWT) has witnessed a decline in interest from the smart money, it’s safe to say that there was a specific group of funds that elected to cut their positions entirely in the first quarter. Interestingly, Kenneth Tropin’s Graham Capital Management cut the biggest stake of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $18.3 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $5 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 4 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Redwood Trust, Inc. (NYSE:RWT) but similarly valued. We will take a look at OFG Bancorp (NYSE:OFG), Loral Space & Communications Inc (NASDAQ:LORL), RPC, Inc. (NYSE:RES), Denny’s Corporation (NASDAQ:DENN), Stock Yards Bancorp, Inc. (NASDAQ:SYBT), Huron Consulting Group (NASDAQ:HURN), and Linx S.A. (NYSE:LINX). This group of stocks’ market caps match RWT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OFG 10 60051 2
LORL 14 432461 -3
RES 14 32492 -3
DENN 20 118636 3
SYBT 5 6466 -1
HURN 8 23348 2
LINX 3 32779 -3
Average 10.6 100890 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.6 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $70 million in RWT’s case. Denny’s Corporation (NASDAQ:DENN) is the most popular stock in this table. On the other hand Linx S.A. (NYSE:LINX) is the least popular one with only 3 bullish hedge fund positions. Redwood Trust, Inc. (NYSE:RWT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RWT is 69.7. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and still beat the market by 10.1 percentage points. Hedge funds were also right about betting on RWT, though not to the same extent, as the stock returned 14.1% since Q1 (through July 23rd) and outperformed the market as well.

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