Is Walker & Dunlop Inc. (WD) Going to Burn These Hedge Funds?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Walker & Dunlop Inc. (NYSE:WD).

Walker & Dunlop Inc. (NYSE:WD) investors should pay attention to a decrease in support from the world’s most successful money managers in recent months. There were 16 hedge funds in our database with WD holdings at the end of the second quarter. At the end of this article we will also compare WD to other stocks including Atrion Corporation (NASDAQ:ATRI), Iridium Communications Inc. (NASDAQ:IRDM), and Cresud S.A.C.I.F. y A. (ADR) (NASDAQ:CRESY) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, we’re going to take a glance at the key action regarding Walker & Dunlop Inc. (NYSE:WD).

What does the smart money think about Walker & Dunlop Inc. (NYSE:WD)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 31% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in WD over the last 5 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Citadel Investment Group, led by Ken Griffin, holds the number one position in Walker & Dunlop Inc. (NYSE:WD). According to regulatory filings, the fund has an $8.4 million position in the stock, comprising less than 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Chuck Royce of Royce & Associates, with a $6.3 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Cliff Asness’s AQR Capital Management, Millennium Management, one of the biggest hedge funds in the world, and D. E. Shaw’s D E Shaw. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Seeing as Walker & Dunlop Inc. (NYSE:WD) has experienced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few fund managers that slashed their entire stakes last quarter. Intriguingly, David Brown’s Hawk Ridge Management got rid of the biggest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $0.7 million in stock. Louis Navellier’s fund, Navellier & Associates, also dropped its stock, about $0.6 million worth of WD shares.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Walker & Dunlop Inc. (NYSE:WD) but similarly valued. We will take a look at Atrion Corporation (NASDAQ:ATRI), Iridium Communications Inc. (NASDAQ:IRDM), Cresud S.A.C.I.F. y A. (ADR) (NASDAQ:CRESY), and LGI Homes Inc (NASDAQ:LGIH). All of these stocks’ market caps are closest to WD’s market cap.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $33 million in WD’s case. Iridium Communications Inc. (NASDAQ:IRDM) is the most popular stock in this table. On the other hand Atrion Corporation (NASDAQ:ATRI) is the least popular one with only 5 bullish hedge fund positions. Walker & Dunlop Inc. (NYSE:WD) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard IRDM might be a better candidate to consider taking a long position in.

Disclosure: none.