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Did Hedge Funds Drop The Ball On Realogy Holdings Corp (RLGY) ?

Abigail Fisher

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Realogy Holdings Corp (NYSE:RLGY).

Realogy Holdings Corp (NYSE:RLGY) was in 23 hedge funds' portfolios at the end of September. RLGY investors should be aware of a decrease in activity from the world's largest hedge funds of late. There were 24 hedge funds in our database with RLGY positions at the end of the previous quarter. Our calculations also showed that RLGY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

At the moment there are a large number of metrics market participants put to use to appraise their stock investments. A duo of the best metrics are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the elite fund managers can beat the market by a healthy amount (see the details here).

[caption id="attachment_364856" align="aligncenter" width="584"] Ahmet Okumus of Okumus Fund Management[/caption]

Ahmet Okumus - Okumus Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a look at the recent hedge fund action regarding Realogy Holdings Corp (NYSE:RLGY).

What does smart money think about Realogy Holdings Corp (NYSE:RLGY)?

At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RLGY over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Realogy Holdings Corp (NYSE:RLGY) was held by Southeastern Asset Management, which reported holding $110.7 million worth of stock at the end of September. It was followed by Tremblant Capital with a $63.1 million position. Other investors bullish on the company included Okumus Fund Management, Pzena Investment Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Okumus Fund Management allocated the biggest weight to Realogy Holdings Corp (NYSE:RLGY), around 14.91% of its 13F portfolio. Tremblant Capital is also relatively very bullish on the stock, earmarking 3.63 percent of its 13F equity portfolio to RLGY.

Because Realogy Holdings Corp (NYSE:RLGY) has witnessed bearish sentiment from the smart money, it's easy to see that there were a few fund managers who sold off their positions entirely by the end of the third quarter. At the top of the heap, Ray Dalio's Bridgewater Associates said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, totaling close to $18.4 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund dropped about $0.8 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third 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 Hanger, Inc. (NYSE:HNGR), Cornerstone Building Brands, Inc. (NYSE:CNR), Atara Biotherapeutics Inc (NASDAQ:ATRA), and Berry Petroleum Corporation (NASDAQ:BRY). This group of stocks' market valuations are similar to RLGY's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HNGR,15,113060,-2 CNR,18,84579,3 ATRA,15,357961,3 BRY,18,166597,0 Average,16.5,180549,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $181 million. That figure was $303 million in RLGY's case. Cornerstone Building Brands, Inc. (NYSE:CNR) is the most popular stock in this table. On the other hand Hanger, Inc. (NYSE:HNGR) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Realogy Holdings Corp (NYSE:RLGY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on RLGY as the stock returned 56.7% during the first two months of Q4 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.

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

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