Starwood Property Trust, Inc. (STWD): Are Hedge Funds Right About This Stock?

Asma UL Husna

Updated Fri, Dec 14, 2018, 7:56 PM

Is Starwood Property Trust, Inc. (NYSE:STWD) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy league graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Starwood Property Trust, Inc. (NYSE:STWD) shareholders have witnessed an increase in support from the world's most elite money managers of late. Our calculations also showed that STWD isn't among the 30 most popular stocks among hedge funds.

According to most shareholders, hedge funds are perceived as slow, outdated financial tools of yesteryear. While there are more than 8,000 funds trading at the moment, We look at the bigwigs of this club, approximately 700 funds. Most estimates calculate that this group of people control the lion's share of the smart money's total capital, and by following their first-class picks, Insider Monkey has figured out several investment strategies that have historically defeated the broader indices. Insider Monkey's flagship hedge fund strategy surpassed the S&P 500 index by 6 percentage points a year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.

We're going to review the recent hedge fund action regarding Starwood Property Trust, Inc. (NYSE:STWD).

How have hedgies been trading Starwood Property Trust, Inc. (NYSE:STWD)?

At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in STWD at the beginning of this year. 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 Starwood Property Trust, Inc. (NYSE:STWD) was held by Clough Capital Partners, which reported holding $43.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $36.8 million position. Other investors bullish on the company included Cardinal Capital, Two Sigma Advisors, and Cobalt Capital Management.

As industrywide interest jumped, key money managers have been driving this bullishness. Hudson Bay Capital Management, managed by Sander Gerber, initiated the most outsized position in Starwood Property Trust, Inc. (NYSE:STWD). Hudson Bay Capital Management had $3.3 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $1.1 million investment in the stock during the quarter. The other funds with brand new STWD positions are Roger Ibbotson's Zebra Capital Management, Dmitry Balyasny's Balyasny Asset Management, and Ken Griffin's Citadel Investment Group.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Starwood Property Trust, Inc. (NYSE:STWD) but similarly valued. We will take a look at Companhia Brasileira de Distrib. (NYSE:CBD), Store Capital Corporation (NYSE:STOR), LATAM Airlines Group S.A. (NYSE:LTM), and Leggett & Platt, Inc. (NYSE:LEG). All of these stocks' market caps are similar to STWD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBD,10,47763,3 STOR,19,720759,2 LTM,5,28344,1 LEG,10,26768,-2 Average,11,205909,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $206 million. That figure was $188 million in STWD's case. Store Capital Corporation (NYSE:STOR) is the most popular stock in this table. On the other hand LATAM Airlines Group S.A. (NYSE:LTM) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Starwood Property Trust, Inc. (NYSE:STWD) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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