Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Radian Group Inc (NYSE:RDN)? The smart money sentiment can provide an answer to this question.
Radian Group Inc (NYSE:RDN) has experienced a decrease in hedge fund interest recently. Radian Group Inc (NYSE:RDN) was in 30 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 38. There were 37 hedge funds in our database with RDN positions at the end of the fourth quarter. Our calculations also showed that RDN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. Now we’re going to take a look at the fresh hedge fund action regarding Radian Group Inc (NYSE:RDN).
Do Hedge Funds Think RDN Is A Good Stock To Buy Now?
At the end of March, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards RDN over the last 23 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, King Street Capital held the most valuable stake in Radian Group Inc (NYSE:RDN), which was worth $76.1 million at the end of the fourth quarter. On the second spot was Rima Senvest Management which amassed $69.7 million worth of shares. Redwood Capital Management, GoldenTree Asset Management, and Arrowstreet Capital 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 Callodine Capital Management allocated the biggest weight to Radian Group Inc (NYSE:RDN), around 8.63% of its 13F portfolio. King Street Capital is also relatively very bullish on the stock, dishing out 5.69 percent of its 13F equity portfolio to RDN.
Because Radian Group Inc (NYSE:RDN) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedge funds who were dropping their entire stakes in the first quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management said goodbye to the largest position of all the hedgies monitored by Insider Monkey, totaling an estimated $9.5 million in stock. Doug Silverman and Alexander Klabin’s fund, Senator Investment Group, also cut its stock, about $9.1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 7 funds in the first quarter.
Let’s go over hedge fund activity in other stocks similar to Radian Group Inc (NYSE:RDN). We will take a look at ACI Worldwide Inc (NASDAQ:ACIW), VIZIO Holding Corp. (NYSE:VZIO), UMB Financial Corporation (NASDAQ:UMBF), Sterling Bancorp (NYSE:STL), Rayonier Inc. (NYSE:RYN), DigitalOcean Holdings, Inc. (NYSE:DOCN), and Diversey Holdings, Ltd. (NASDAQ:DSEY). All of these stocks’ market caps are closest to RDN’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.4 hedge funds with bullish positions and the average amount invested in these stocks was $311 million. That figure was $436 million in RDN’s case. ACI Worldwide Inc (NASDAQ:ACIW) is the most popular stock in this table. On the other hand UMB Financial Corporation (NASDAQ:UMBF) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Radian Group Inc (NYSE:RDN) is more popular among hedge funds. Our overall hedge fund sentiment score for RDN is 71.7. 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 22.8% in 2021 through July 2nd and still beat the market by 6 percentage points. Unfortunately RDN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on RDN were disappointed as the stock returned -2.5% since the end of the first quarter (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.