How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Realogy Holdings Corp (NYSE:RLGY) and determine whether hedge funds had an edge regarding this stock.
Is Realogy Holdings Corp (NYSE:RLGY) a healthy stock for your portfolio? The smart money was taking a pessimistic view. The number of long hedge fund positions dropped by 5 lately. Our calculations also showed that RLGY isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). RLGY was in 25 hedge funds' portfolios at the end of the first quarter of 2020. There were 30 hedge funds in our database with RLGY holdings at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are dozens of formulas shareholders employ to appraise stocks. Two of the most underrated formulas are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the best money managers can outclass the S&P 500 by a healthy amount (see the details here).
[caption id="attachment_747408" align="aligncenter" width="400"] Paul Reeder of PAR Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we're going to go over the recent hedge fund action regarding Realogy Holdings Corp (NYSE:RLGY).
How have hedgies been trading Realogy Holdings Corp (NYSE:RLGY)?
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the fourth quarter of 2019. By comparison, 28 hedge funds held shares or bullish call options in RLGY a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Southeastern Asset Management was the largest shareholder of Realogy Holdings Corp (NYSE:RLGY), with a stake worth $49.9 million reported as of the end of September. Trailing Southeastern Asset Management was Prentice Capital Management, which amassed a stake valued at $13.3 million. Pzena Investment Management, Tremblant Capital, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Prentice Capital Management allocated the biggest weight to Realogy Holdings Corp (NYSE:RLGY), around 6.32% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, earmarking 1.19 percent of its 13F equity portfolio to RLGY.
Seeing as Realogy Holdings Corp (NYSE:RLGY) has faced falling interest from hedge fund managers, it's easy to see that there lies a certain "tier" of hedge funds who were dropping their full holdings last quarter. Interestingly, Ahmet Okumus's Okumus Fund Management sold off the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling an estimated $79.3 million in stock. Renaissance Technologies, also dumped its stock, about $12.8 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 5 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Realogy Holdings Corp (NYSE:RLGY) but similarly valued. We will take a look at International Money Express, Inc. (NASDAQ:IMXI), Artesian Resources Corporation (NASDAQ:ARTNA), The Bancorp, Inc. (NASDAQ:TBBK), and Mercantile Bank Corp. (NASDAQ:MBWM). This group of stocks' market values resemble RLGY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IMXI,9,66798,-5 ARTNA,3,15815,0 TBBK,15,44580,-3 MBWM,4,21903,-2 Average,7.75,37274,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $105 million in RLGY's case. The Bancorp, Inc. (NASDAQ:TBBK) is the most popular stock in this table. On the other hand Artesian Resources Corporation (NASDAQ:ARTNA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Realogy Holdings Corp (NYSE:RLGY) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on RLGY as the stock returned 146.2% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.