The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards PennyMac Financial Services Inc (NYSE:PFSI) and see how it was affected.
PennyMac Financial Services Inc (NYSE:PFSI) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds’ portfolios at the end of the third quarter of 2015. At the end of this article we will also compare PFSI to other stocks, including Elizabeth Arden, Inc. (NASDAQ:RDEN), Bridgepoint Education Inc (NYSE:BPI), and LinnCo LLC (NASDAQ:LNCO) to get a better sense of its popularity.
In the financial world there are several formulas shareholders use to assess their holdings. A duo of the less utilized formulas are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the elite investment managers can trounce the broader indices by a significant amount (see the details here).
With all of this in mind, we’re going to take a look at the recent action encompassing PennyMac Financial Services Inc (NYSE:PFSI).
How are hedge funds trading PennyMac Financial Services Inc (NYSE:PFSI)?
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the second quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Omega Advisors, managed by Leon Cooperman, holds the most valuable position in PennyMac Financial Services Inc (NYSE:PFSI). Omega Advisors has a $51.7 million position in the stock, comprising 1% of its 13F portfolio. The second largest stake is held by Bridger Management, managed by Roberto Mignone, which holds a $28.4 million position; 1.9% of its 13F portfolio is allocated to the company. The remaining hedge funds and institutional investors that are bullish include Richard Mashaal’s Rima Senvest Management, Andrew Goldman’s Seven Locks Capital Management and Matthew Lindenbaum’s Basswood Capital.
Seeing as PennyMac Financial Services Inc (NYSE:PFSI) has witnessed a declination in interest from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers who were dropping their full holdings heading into Q4. Intriguingly, Joseph A. Jolson’s Harvest Capital Strategies said goodbye to the largest position of the “upper crust” of funds tracked by Insider Monkey, worth close to $2.3 million in stock. Eric Halet and Davide Serra’s fund, Algebris Investments, also said goodbye to its stock, about $0.9 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to PennyMac Financial Services Inc (NYSE:PFSI). We will take a look at Elizabeth Arden, Inc. (NASDAQ:RDEN), Bridgepoint Education Inc (NYSE:BPI), LinnCo LLC (NASDAQ:LNCO), and Pfenex Inc (NYSEMKT:PFNX). This group of stocks’ market caps match PFSI’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $30 million, lower than the $162 million in PFSI’s case. LinnCo LLC (NASDAQ:LNCO) is the most popular stock in this table with 13 funds holding long positions, while Elizabeth Arden, Inc. (NASDAQ:RDEN) is the least popular one. Compared to these stocks PennyMac Financial Services Inc (NYSE:PFSI) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.