Were Hedge Funds Right About Loading Up On Radian Group Inc (RDN)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Radian Group Inc (NYSE:RDN).

Is Radian Group Inc (NYSE:RDN) undervalued? Hedge funds were taking an optimistic view. The number of long hedge fund bets went up by 5 in recent months. Radian Group Inc (NYSE:RDN) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that RDN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 28 hedge funds in our database with RDN positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s go over the latest hedge fund action regarding Radian Group Inc (NYSE:RDN).

What does smart money think about Radian Group Inc (NYSE:RDN)?

At the end of the second quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the first quarter of 2020. By comparison, 22 hedge funds held shares or bullish call options in RDN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Radian Group Inc (NYSE:RDN) was held by Rima Senvest Management, which reported holding $36.9 million worth of stock at the end of June. It was followed by Point72 Asset Management with a $22.6 million position. Other investors bullish on the company included Callodine Capital Management, Arrowstreet Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Callodine Capital Management allocated the biggest weight to Radian Group Inc (NYSE:RDN), around 10.84% of its 13F portfolio. Sonic Capital is also relatively very bullish on the stock, dishing out 2.32 percent of its 13F equity portfolio to RDN.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Radian Group Inc (NYSE:RDN) headfirst. Azora Capital, managed by Ravi Chopra, established the biggest position in Radian Group Inc (NYSE:RDN). Azora Capital had $5.3 million invested in the company at the end of the quarter. Rob Citrone’s Discovery Capital Management also made a $3.1 million investment in the stock during the quarter. The other funds with brand new RDN positions are Gregg Moskowitz’s Interval Partners, Michael Gelband’s ExodusPoint Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s check out hedge fund activity in other stocks similar to Radian Group Inc (NYSE:RDN). These stocks are JetBlue Airways Corporation (NASDAQ:JBLU), Safehold Inc. (NYSE:SAFE), Eagle Materials, Inc. (NYSE:EXP), Verint Systems Inc. (NASDAQ:VRNT), Lexington Realty Trust (NYSE:LXP), Karuna Therapeutics, Inc. (NASDAQ:KRTX), and Fate Therapeutics Inc (NASDAQ:FATE). This group of 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
JBLU 28 131834 -8
SAFE 7 7836 2
EXP 41 428808 7
VRNT 25 333301 8
LXP 10 43913 0
KRTX 16 177325 0
FATE 36 985557 12
Average 23.3 301225 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $301 million. That figure was $191 million in RDN’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand Safehold Inc. (NYSE:SAFE) is the least popular one with only 7 bullish hedge fund positions. Radian Group Inc (NYSE:RDN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RDN is 78.2. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on RDN as the stock returned 16.7% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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