At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Red Violet, Inc. (NASDAQ:RDVT).
Red Violet, Inc. (NASDAQ:RDVT) has seen a decrease in activity from the world's largest hedge funds lately. RDVT was in 5 hedge funds' portfolios at the end of the first quarter of 2020. There were 9 hedge funds in our database with RDVT positions at the end of the previous quarter. Our calculations also showed that RDVT 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). 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 58 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.
[caption id="attachment_738761" align="aligncenter" width="400"] Fred DiSanto of Ancora Advisors[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to take a look at the key hedge fund action encompassing Red Violet, Inc. (NASDAQ:RDVT).
What does smart money think about Red Violet, Inc. (NASDAQ:RDVT)?
Heading into the second quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -44% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RDVT over the last 18 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in Red Violet, Inc. (NASDAQ:RDVT) was held by Venator Capital Management, which reported holding $4.2 million worth of stock at the end of September. It was followed by SG Capital Management with a $3.6 million position. Other investors bullish on the company included Millennium Management, Renaissance Technologies, and Ancora Advisors. In terms of the portfolio weights assigned to each position Venator Capital Management allocated the biggest weight to Red Violet, Inc. (NASDAQ:RDVT), around 4.33% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, earmarking 1.65 percent of its 13F equity portfolio to RDVT.
Because Red Violet, Inc. (NASDAQ:RDVT) has faced falling interest from the aggregate hedge fund industry, we can see that there exists a select few hedge funds who sold off their entire stakes heading into Q4. Interestingly, Michael Gelband's ExodusPoint Capital dropped the largest position of the 750 funds tracked by Insider Monkey, totaling close to $0.3 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also cut its stock, about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds heading into Q4.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Red Violet, Inc. (NASDAQ:RDVT) but similarly valued. These stocks are Stereotaxis Inc (NASDAQ:STXS), Selecta Biosciences, Inc. (NASDAQ:SELB), Gravity Co., LTD. (NASDAQ:GRVY), and Sierra Wireless, Inc. (NASDAQ:SWIR). This group of stocks' market values are closest to RDVT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STXS,13,84564,2 SELB,21,94687,8 GRVY,4,2026,-1 SWIR,9,52739,-3 Average,11.75,58504,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $10 million in RDVT's case. Selecta Biosciences, Inc. (NASDAQ:SELB) is the most popular stock in this table. On the other hand Gravity Co., LTD. (NASDAQ:GRVY) is the least popular one with only 4 bullish hedge fund positions. Red Violet, Inc. (NASDAQ:RDVT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately RDVT wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RDVT investors were disappointed as the stock returned 1.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.