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Hedge Funds Are Betting On The RealReal, Inc. (REAL)

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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 The RealReal, Inc. (NASDAQ:REAL).

The RealReal, Inc. (NASDAQ:REAL) shareholders have witnessed an increase in hedge fund sentiment of late. The RealReal, Inc. (NASDAQ:REAL) was in 26 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 33. Our calculations also showed that REAL isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bill Miller
Bill Miller

Bill Miller of Miller Value Partners

With all of this in mind let's take a look at the new hedge fund action surrounding The RealReal, Inc. (NASDAQ:REAL).

Do Hedge Funds Think REAL Is A Good Stock To Buy Now?

At second quarter's end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the first quarter of 2020. On the other hand, there were a total of 19 hedge funds with a bullish position in REAL a year ago. With the smart money's capital changing hands, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Miller Value Partners held the most valuable stake in The RealReal, Inc. (NASDAQ:REAL), which was worth $81.2 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $49.9 million worth of shares. Broad Peak Investment Holdings, Millennium Management, and Holocene Advisors 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 Hidden Lake Asset Management allocated the biggest weight to The RealReal, Inc. (NASDAQ:REAL), around 5.62% of its 13F portfolio. Broad Peak Investment Holdings is also relatively very bullish on the stock, designating 3.31 percent of its 13F equity portfolio to REAL.

As one would reasonably expect, key money managers have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, assembled the biggest position in The RealReal, Inc. (NASDAQ:REAL). Holocene Advisors had $19.9 million invested in the company at the end of the quarter. Kevin Mok's Hidden Lake Asset Management also initiated a $17.4 million position during the quarter. The other funds with brand new REAL positions are Dmitry Balyasny's Balyasny Asset Management, Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital, and Israel Englander's Millennium Management.

Let's check out hedge fund activity in other stocks similar to The RealReal, Inc. (NASDAQ:REAL). These stocks are Eagle Bancorp, Inc. (NASDAQ:EGBN), Global Blue Group Holding AG (NYSE:GB), Replimune Group, Inc. (NASDAQ:REPL), Genetron Holdings Limited (NASDAQ:GTH), Aurora Cannabis Inc. (NASDAQ:ACB), GoPro Inc (NASDAQ:GPRO), and Provident Financial Services, Inc. (NYSE:PFS). This group of stocks' market valuations are similar to REAL's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EGBN,15,21945,2 GB,13,1481829,-3 REPL,13,268698,0 GTH,14,179124,2 ACB,9,62764,-3 GPRO,28,413732,-8 PFS,7,11027,-4 Average,14.1,348446,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.1 hedge funds with bullish positions and the average amount invested in these stocks was $348 million. That figure was $343 million in REAL's case. GoPro Inc (NASDAQ:GPRO) is the most popular stock in this table. On the other hand Provident Financial Services, Inc. (NYSE:PFS) is the least popular one with only 7 bullish hedge fund positions. The RealReal, Inc. (NASDAQ:REAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for REAL is 75.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately REAL wasn't nearly as popular as these 5 stocks and hedge funds that were betting on REAL were disappointed as the stock returned -40% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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