Redwood Trust, Inc. (NYSE:RWT) was in 9 hedge funds’ portfolio at the end of the fourth quarter of 2012. RWT investors should be aware of an increase in enthusiasm from smart money of late. There were 7 hedge funds in our database with RWT holdings at the end of the previous quarter.
According to most shareholders, hedge funds are viewed as unimportant, old investment tools of the past. While there are more than 8000 funds with their doors open at present, we choose to focus on the bigwigs of this group, around 450 funds. Most estimates calculate that this group oversees most of the smart money’s total asset base, and by paying attention to their top stock picks, we have identified a number of investment strategies that have historically outstripped the market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 24 percentage points in 7 months (see all of our picks from August).
Equally as beneficial, positive insider trading sentiment is a second way to break down the financial markets. As the old adage goes: there are a number of motivations for a corporate insider to drop shares of his or her company, but just one, very obvious reason why they would buy. Several empirical studies have demonstrated the valuable potential of this method if “monkeys” understand where to look (learn more here).
With all of this in mind, let’s take a look at the latest action surrounding Redwood Trust, Inc. (NYSE:RWT).
How are hedge funds trading Redwood Trust, Inc. (NYSE:RWT)?
At the end of the fourth quarter, a total of 9 of the hedge funds we track were long in this stock, a change of 29% from the third quarter. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly.
When looking at the hedgies we track, Wallace Weitz’s Wallace R. Weitz & Co. had the biggest position in Redwood Trust, Inc. (NYSE:RWT), worth close to $110.5 million, comprising 4.9% of its total 13F portfolio. Coming in second is Ric Dillon of Diamond Hill Capital, with a $10.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds that are bullish include Andrew Sandler’s Sandler Capital Management, Steven Cohen’s SAC Capital Advisors and Robert B. Gillam’s McKinley Capital Management.
Now, key money managers were leading the bulls’ herd. Sandler Capital Management, managed by Andrew Sandler, initiated the biggest position in Redwood Trust, Inc. (NYSE:RWT). Sandler Capital Management had 2 million invested in the company at the end of the quarter. Robert B. Gillam’s McKinley Capital Management also initiated a $0.8 million position during the quarter. The only other fund with a new position in the stock is John Overdeck and David Siegel’s Two Sigma Advisors.
How have insiders been trading Redwood Trust, Inc. (NYSE:RWT)?
Insider buying is most useful when the company in question has seen transactions within the past six months. Over the last 180-day time period, Redwood Trust, Inc. (NYSE:RWT) has experienced zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).
Let’s also examine hedge fund and insider activity in other stocks similar to Redwood Trust, Inc. (NYSE:RWT). These stocks are Colony Financial Inc (NYSE:CLNY), American Capital Mortgage Investment Crp (NASDAQ:MTGE), Spirit Realty Capital Inc (NYSE:SRC), Brandywine Realty Trust (NYSE:BDN), and PS Business Parks Inc (NYSE:PSB). This group of stocks belong to the reit – diversified industry and their market caps match RWT’s market cap.
|Company Name||# of Hedge Funds||# of Insiders Buying||# of Insiders Selling|
|Colony Financial Inc (NYSE:CLNY)||16||0||6|
|American Capital Mortgage Investment Crp (NASDAQ:MTGE)||12||5||1|
|Spirit Realty Capital Inc (NYSE:SRC)||17||0||0|
|Brandywine Realty Trust (NYSE:BDN)||11||0||4|
|PS Business Parks Inc (NYSE:PSB)||12||0||5|
With the returns demonstrated by Insider Monkey’s research, retail investors should always watch hedge fund and insider trading activity, and Redwood Trust, Inc. (NYSE:RWT) applies perfectly to this mantra.