"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Is Re/Max Holdings Inc (NYSE:RMAX) a buy here? The smart money is taking a bearish view. The number of bullish hedge fund positions went down by 5 recently. Our calculations also showed that rmax isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_746830" align="aligncenter" width="473"] Matthew Hulsizer of PEAK6 Capital[/caption]
We're going to analyze the new hedge fund action surrounding Re/Max Holdings Inc (NYSE:RMAX).
What does the smart money think about Re/Max Holdings Inc (NYSE:RMAX)?
At Q4's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -50% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in RMAX a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Re/Max Holdings Inc (NYSE:RMAX), with a stake worth $37 million reported as of the end of December. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $5.8 million. Two Sigma Advisors, Marshall Wace LLP, and PEAK6 Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Re/Max Holdings Inc (NYSE:RMAX) has witnessed declining sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of fund managers who sold off their full holdings heading into Q3. Intriguingly, Dmitry Balyasny's Balyasny Asset Management dumped the biggest position of the "upper crust" of funds tracked by Insider Monkey, totaling an estimated $4.1 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund said goodbye to about $1.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Re/Max Holdings Inc (NYSE:RMAX) but similarly valued. We will take a look at Omega Flex, Inc. (NASDAQ:OFLX), Synthorx, Inc. (NASDAQ:THOR), Rayonier Advanced Materials Inc (NYSE:RYAM), and Sabine Royalty Trust (NYSE:SBR). This group of stocks' market caps are closest to RMAX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OFLX,5,8298,1 THOR,5,300834,5 RYAM,19,102909,-4 SBR,6,18768,-1 Average,8.75,107702,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $47 million in RMAX's case. Rayonier Advanced Materials Inc (NYSE:RYAM) is the most popular stock in this table. On the other hand Omega Flex, Inc. (NASDAQ:OFLX) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Re/Max Holdings Inc (NYSE:RMAX) is even less popular than OFLX. Hedge funds clearly dropped the ball on RMAX as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on RMAX as the stock returned 31.6% and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.