Is Western Asset Mortgage Capital Corp (NYSE:WMC) a bargain? The smart money is selling. The number of bullish hedge fund bets shrunk by 3 recently.
In the eyes of most stock holders, hedge funds are perceived as worthless, outdated financial tools of yesteryear. While there are greater than 8000 funds with their doors open at the moment, we hone in on the aristocrats of this club, about 450 funds. It is estimated that this group controls the lion’s share of the hedge fund industry’s total asset base, and by paying attention to their best investments, we have uncovered a number of investment strategies that have historically outpaced the S&P 500 index. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 23.3 percentage points in 8 months (see the details here).
Equally as important, optimistic insider trading activity is a second way to break down the investments you’re interested in. There are a number of stimuli for a corporate insider to drop shares of his or her company, but only one, very simple reason why they would behave bullishly. Plenty of empirical studies have demonstrated the impressive potential of this strategy if you know where to look (learn more here).
Now, we’re going to take a peek at the key action encompassing Western Asset Mortgage Capital Corp (NYSE:WMC).
What does the smart money think about Western Asset Mortgage Capital Corp (NYSE:WMC)?
At Q1’s end, a total of 9 of the hedge funds we track held long positions in this stock, a change of -25% from one quarter earlier. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes significantly.
Of the funds we track, Brian Jackelow’s SAB Capital Management had the biggest position in Western Asset Mortgage Capital Corp (NYSE:WMC), worth close to $27.9 million, accounting for 2.2% of its total 13F portfolio. The second largest stake is held by Brian Taylor of Pine River Capital Management, with a $25 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other peers that hold long positions include Daniel S. Och’s OZ Management, D. E. Shaw’s D E Shaw and Jim Simons’s Renaissance Technologies.
Seeing as Western Asset Mortgage Capital Corp (NYSE:WMC) has witnessed a declination in interest from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds that decided to sell off their full holdings at the end of the first quarter. Interestingly, James Melcher’s Balestra dropped the biggest stake of all the hedgies we watch, comprising an estimated $7.5 million in stock., and Anand Parekh of Alyeska Investment Group was right behind this move, as the fund said goodbye to about $2 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 3 funds at the end of the first quarter.
How are insiders trading Western Asset Mortgage Capital Corp (NYSE:WMC)?
Bullish insider trading is particularly usable when the company we’re looking at has seen transactions within the past 180 days. Over the latest six-month time period, Western Asset Mortgage Capital Corp (NYSE:WMC) has seen 3 unique insiders purchasing, and zero insider sales (see the details of insider trades here).
Let’s also take a look at hedge fund and insider activity in other stocks similar to Western Asset Mortgage Capital Corp (NYSE:WMC). These stocks are Marlin Business Services Corp. (NASDAQ:MRLN), Arlington Asset Investment Corp (NYSE:AI), HFF, Inc. (NYSE:HF), Hercules Technology Growth Capital Inc (NYSE:HTGC), and Ellington Financial LLC (NYSE:EFC). This group of stocks are in the mortgage investment industry and their market caps are similar to WMC’s market cap.