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We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Retail Value Inc. (NYSE:RVI).
Is Retail Value Inc. (NYSE:RVI) a cheap stock to buy now? Money managers are getting less bullish. The number of bullish hedge fund bets retreated by 1 lately. Our calculations also showed that RVI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). RVI was in 16 hedge funds' portfolios at the end of the third quarter of 2019. There were 17 hedge funds in our database with RVI holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Christian Leone of Luxor Capital Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the new hedge fund action regarding Retail Value Inc. (NYSE:RVI).
What have hedge funds been doing with Retail Value Inc. (NYSE:RVI)?
Heading into the fourth quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in RVI a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
The largest stake in Retail Value Inc. (NYSE:RVI) was held by Luxor Capital Group, which reported holding $110.9 million worth of stock at the end of September. It was followed by Indaba Capital Management with a $36.2 million position. Other investors bullish on the company included Hawk Ridge Management, Renaissance Technologies, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Indaba Capital Management allocated the biggest weight to Retail Value Inc. (NYSE:RVI), around 8.47% of its 13F portfolio. Luxor Capital Group is also relatively very bullish on the stock, setting aside 2.94 percent of its 13F equity portfolio to RVI.
Seeing as Retail Value Inc. (NYSE:RVI) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few funds who were dropping their positions entirely in the third quarter. At the top of the heap, David Rosen's Rubric Capital Management sold off the biggest investment of the "upper crust" of funds tracked by Insider Monkey, valued at close to $3.7 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also dumped its stock, about $3 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Retail Value Inc. (NYSE:RVI) but similarly valued. We will take a look at Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA), Enova International Inc (NYSE:ENVA), WAVE Life Sciences Ltd. (NASDAQ:WVE), and Stoke Therapeutics, Inc. (NASDAQ:STOK). This group of stocks' market caps match RVI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LTRPA,25,199428,4 ENVA,20,131728,0 WVE,17,260950,-3 STOK,10,117509,-8 Average,18,177404,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $177 million. That figure was $200 million in RVI's case. Liberty Tripadvisor Holdings Inc (NASDAQ:LTRPA) is the most popular stock in this table. On the other hand Stoke Therapeutics, Inc. (NASDAQ:STOK) is the least popular one with only 10 bullish hedge fund positions. Retail Value Inc. (NYSE:RVI) 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 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. Unfortunately RVI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RVI investors were disappointed as the stock returned 1.3% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.