Is PFSI A Good Stock To Buy According To Hedge Funds?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on PennyMac Financial Services Inc (NYSE:PFSI).

Is PFSI a good stock to buy? Money managers were in a bullish mood. The number of bullish hedge fund positions went up by 6 recently. PennyMac Financial Services Inc (NYSE:PFSI) was in 31 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PFSI 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.

To most investors, hedge funds are viewed as underperforming, old investment vehicles of yesteryear. While there are more than 8000 funds in operation today, Our researchers hone in on the aristocrats of this group, approximately 850 funds. Most estimates calculate that this group of people command most of the smart money’s total capital, and by paying attention to their best equity investments, Insider Monkey has found various investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

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

At the end of September, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in PFSI over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Clough Capital Partners, managed by Charles Clough, holds the biggest position in PennyMac Financial Services Inc (NYSE:PFSI). Clough Capital Partners has a $75.2 million position in the stock, comprising 5.4% of its 13F portfolio. The second largest stake is held by Matthew Lindenbaum of Basswood Capital, with a $74.8 million position; 6.2% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions consist of Paul Reeder and Edward Shapiro’s PAR Capital Management, Richard Mashaal’s Rima Senvest Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position OCO Capital Partners allocated the biggest weight to PennyMac Financial Services Inc (NYSE:PFSI), around 16.52% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, earmarking 6.21 percent of its 13F equity portfolio to PFSI.

Consequently, some big names have jumped into PennyMac Financial Services Inc (NYSE:PFSI) headfirst. Millennium Management, managed by Israel Englander, created the most outsized position in PennyMac Financial Services Inc (NYSE:PFSI). Millennium Management had $9.5 million invested in the company at the end of the quarter. Jeff Osher’s No Street Capital also initiated a $9.3 million position during the quarter. The following funds were also among the new PFSI investors: David Harding’s Winton Capital Management, Michael Gelband’s ExodusPoint Capital, and Jinghua Yan’s TwinBeech Capital.

Let’s now review hedge fund activity in other stocks similar to PennyMac Financial Services Inc (NYSE:PFSI). We will take a look at II-VI, Inc. (NASDAQ:IIVI), OneMain Holdings Inc (NYSE:OMF), MAXIMUS, Inc. (NYSE:MMS), DouYu International Holdings Limited (NASDAQ:DOYU), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), MorphoSys AG (NASDAQ:MOR), and Essent Group Ltd (NYSE:ESNT). All of these stocks’ market caps resemble PFSI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IIVI 24 104148 -4
OMF 33 470569 -4
MMS 22 127113 -4
DOYU 23 165123 8
TKC 5 35465 0
MOR 4 13716 -2
ESNT 22 241956 -7
Average 19 165441 -1.9

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 $165 million. That figure was $444 million in PFSI’s case. OneMain Holdings Inc (NYSE:OMF) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 4 bullish hedge fund positions. PennyMac Financial Services Inc (NYSE:PFSI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PFSI is 86.6. 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 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on PFSI, though not to the same extent, as the stock returned 10.8% since Q3 (through December 18th) and outperformed the market as well.

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