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Should You Buy Walker & Dunlop Inc. (WD)?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2018) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Walker & Dunlop Inc. (NYSE:WD).

Walker & Dunlop Inc. (NYSE:WD) investors should be aware of an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that wd isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Let’s take a peek at the key hedge fund action surrounding Walker & Dunlop Inc. (NYSE:WD).

What have hedge funds been doing with Walker & Dunlop Inc. (NYSE:WD)?

At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in WD heading into this year. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

No of Hedge Funds with WD Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alyeska Investment Group, managed by Anand Parekh, holds the largest position in Walker & Dunlop Inc. (NYSE:WD). Alyeska Investment Group has a $20.3 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Royce & Associates, managed by Chuck Royce, which holds a $13.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers with similar optimism encompass Cliff Asness’s AQR Capital Management, D. E. Shaw’s D E Shaw and Jim Simons’s Renaissance Technologies.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the largest position in Walker & Dunlop Inc. (NYSE:WD). Marshall Wace LLP had $2.8 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Anton Schutz’s Mendon Capital Advisors, Dmitry Balyasny’s Balyasny Asset Management, and Ken Griffin’s Citadel Investment Group.

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. These stocks are BrightView Holdings, Inc. (NYSE:BV), LendingClub Corp (NYSE:LC), Raven Industries, Inc. (NASDAQ:RAVN), and Akorn, Inc. (NASDAQ:AKRX). This group of stocks’ market caps are similar to WD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BV 13 35464 -8
LC 9 5901 -1
RAVN 15 91757 3
AKRX 39 301099 0
Average 19 108555 -1.5

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 $109 million. That figure was $74 million in WD’s case. Akorn, Inc. (NASDAQ:AKRX) is the most popular stock in this table. On the other hand LendingClub Corp (NYSE:LC) is the least popular one with only 9 bullish hedge fund positions. Walker & Dunlop Inc. (NYSE:WD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard AKRX might be a better candidate to consider a long position.

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

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