It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. 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 Revlon Inc (NYSE:REV).
Is Revlon Inc (NYSE:REV) going to take off soon? The smart money is turning bullish. The number of bullish hedge fund positions increased by 3 recently. Our calculations also showed that REV isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In today’s marketplace there are tons of formulas investors employ to appraise publicly traded companies. A pair of the most innovative formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the top investment managers can outpace the S&P 500 by a healthy margin (see the details here).
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a gander at the fresh hedge fund action surrounding Revlon Inc (NYSE:REV).
What have hedge funds been doing with Revlon Inc (NYSE:REV)?
At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in REV a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Pzena Investment Management held the most valuable stake in Revlon Inc (NYSE:REV), which was worth $49.6 million at the end of the second quarter. On the second spot was SCW Capital Management which amassed $39.4 million worth of shares. Moreover, Eversept Partners, Litespeed Management, and Renaissance Technologies were also bullish on Revlon Inc (NYSE:REV), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, specific money managers have been driving this bullishness. GMT Capital, managed by Thomas E. Claugus, established the most outsized position in Revlon Inc (NYSE:REV). GMT Capital had $14 million invested in the company at the end of the quarter. Richard Driehaus's Driehaus Capital also initiated a $7.1 million position during the quarter. The following funds were also among the new REV investors: Israel Englander's Millennium Management, D. E. Shaw's D E Shaw, and Mike Vranos's Ellington.
Let's now take a look at hedge fund activity in other stocks similar to Revlon Inc (NYSE:REV). We will take a look at Orthofix Medical Inc. (NASDAQ:OFIX), Boston Private Financial Holdings, Inc. (NASDAQ:BPFH), Third Point Reinsurance Ltd (NYSE:TPRE), and Odonate Therapeutics, Inc. (NASDAQ:ODT). This group of stocks' market values match REV's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OFIX,13,83112,-6 BPFH,13,62360,-1 TPRE,20,65115,1 ODT,13,634369,4 Average,14.75,211239,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $211 million. That figure was $307 million in REV's case. Third Point Reinsurance Ltd (NYSE:TPRE) is the most popular stock in this table. On the other hand Orthofix Medical Inc. (NASDAQ:OFIX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Revlon Inc (NYSE:REV) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on REV as the stock returned 21.5% during Q3 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.