We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards PHH Corporation (NYSE: PHH ).
Is PHH Corporation (NYSE: PHH ) a bargain? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund bets shrunk by 3 recently. Our calculations also showed that phh isn't among the 30 most popular stocks among hedge funds . PHH was in 11 hedge funds' portfolios at the end of September. There were 14 hedge funds in our database with PHH positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a peek at the new hedge fund action surrounding PHH Corporation (NYSE: PHH ).
How have hedgies been trading PHH Corporation (NYSE:PHH)?
At Q3's end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in PHH over the last 13 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of PHH Corporation (NYSE:PHH), with a stake worth $31.1 million reported as of the end of September. Trailing Renaissance Technologies was Magnetar Capital, which amassed a stake valued at $18 million. D E Shaw, GLG Partners, and Stevens Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that PHH Corporation (NYSE:PHH) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that elected to cut their entire stakes in the third quarter. Intriguingly, Robert Emil Zoellner's Alpine Associates sold off the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at close to $2.7 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund cut about $0.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as PHH Corporation (NYSE:PHH) but similarly valued. We will take a look at Ares Dynamic Credit Allocation Fund Inc (NYSE: ARDC ), Weyco Group, Inc. (NASDAQ: WEYS ), Beazer Homes USA, Inc. (NYSE: BZH ), and Clementia Pharmaceuticals Inc. (NASDAQ: CMTA ). This group of stocks' market values are closest to PHH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARDC,1,567,0 WEYS,3,25041,0 BZH,12,35253,-2 CMTA,10,159761,-1 Average,6.5,55156,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $74 million in PHH's case. Beazer Homes USA, Inc. (NYSE:BZH) is the most popular stock in this table. On the other hand Ares Dynamic Credit Allocation Fund Inc (NYSE:ARDC) is the least popular one with only 1 bullish hedge fund positions. PHH Corporation (NYSE:PHH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard BZH might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey .