At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not PennyMac Mortgage Investment Trust (NYSE:PMT) makes for a good investment right now.
Is PMT a good stock to buy now? PennyMac Mortgage Investment Trust (NYSE:PMT) was in 19 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. PMT has seen an increase in hedge fund sentiment recently. There were 15 hedge funds in our database with PMT holdings at the end of June. Our calculations also showed that PMT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
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 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 66 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.
David Harding
David Harding of Winton Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind let's check out the recent hedge fund action surrounding PennyMac Mortgage Investment Trust (NYSE:PMT).
Do Hedge Funds Think PMT Is A Good Stock To Buy Now?
At the end of September, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the second quarter of 2020. By comparison, 15 hedge funds held shares or bullish call options in PMT a year ago. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, D. E. Shaw's D E Shaw has the number one position in PennyMac Mortgage Investment Trust (NYSE:PMT), worth close to $19.8 million, accounting for less than 0.1%% of its total 13F portfolio. On D E Shaw's heels is Ken Griffin of Citadel Investment Group, with a $11.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism encompass Israel Englander's Millennium Management, David Harding's Winton Capital Management and Sander Gerber's Hudson Bay Capital Management. In terms of the portfolio weights assigned to each position Ellington allocated the biggest weight to PennyMac Mortgage Investment Trust (NYSE:PMT), around 0.22% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.13 percent of its 13F equity portfolio to PMT.
Now, key money managers have jumped into PennyMac Mortgage Investment Trust (NYSE:PMT) headfirst. Renaissance Technologies, established the most valuable position in PennyMac Mortgage Investment Trust (NYSE:PMT). Renaissance Technologies had $2.7 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $1.7 million position during the quarter. The following funds were also among the new PMT investors: Karim Abbadi and Edward McBride's Centiva Capital, Matthew Hulsizer's PEAK6 Capital Management, and Donald Sussman's Paloma Partners.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as PennyMac Mortgage Investment Trust (NYSE:PMT) but similarly valued. We will take a look at Cooper Tire & Rubber Company (NYSE:CTB), Ameresco Inc (NYSE:AMRC), Cedar Fair, L.P. (NYSE:FUN), Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW), Avanos Medical, Inc. (NYSE:AVNS), PMV Pharmaceuticals, Inc. (NASDAQ:PMVP), and Korn Ferry (NYSE:KFY). This group of stocks' market values resemble PMT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTB,23,161958,5 AMRC,8,56869,-5 FUN,13,112538,-1 AAWW,27,254084,1 AVNS,20,200128,5 PMVP,17,548921,17 KFY,21,156083,-7 Average,18.4,212940,2.1 [/table]
As you can see these stocks had an average of 18.4 hedge funds with bullish positions and the average amount invested in these stocks was $213 million. That figure was $56 million in PMT's case. Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW) is the most popular stock in this table. On the other hand Ameresco Inc (NYSE:AMRC) is the least popular one with only 8 bullish hedge fund positions. PennyMac Mortgage Investment Trust (NYSE:PMT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PMT is 67.9. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on PMT as the stock returned 11.7% since the end of Q3 (through 12/14) 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.
