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 (see why hell is coming). 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 RPT Realty (NYSE:RPT) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is RPT Realty (NYSE:RPT) undervalued? The best stock pickers were becoming less confident. The number of bullish hedge fund positions dropped by 1 in recent months. Our calculations also showed that RPT 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). RPT was in 12 hedge funds' portfolios at the end of March. There were 13 hedge funds in our database with RPT holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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Paul Tudor Jones of Tudor Investment Corp[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's check out the recent hedge fund action regarding RPT Realty (NYSE:RPT).
What does smart money think about RPT Realty (NYSE:RPT)?
Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RPT over the last 18 quarters. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of RPT Realty (NYSE:RPT), with a stake worth $4.6 million reported as of the end of September. Trailing Renaissance Technologies was Balyasny Asset Management, which amassed a stake valued at $3.7 million. Winton Capital Management, Citadel Investment Group, and Marshall Wace LLP 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 Waterfront Capital Partners allocated the biggest weight to RPT Realty (NYSE:RPT), around 0.13% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to RPT.
Since RPT Realty (NYSE:RPT) has witnessed a decline in interest from the smart money, it's easy to see that there was a specific group of money managers that elected to cut their entire stakes heading into Q4. Intriguingly, Mika Toikka's AlphaCrest Capital Management dumped the largest stake of the 750 funds monitored by Insider Monkey, comprising close to $0.6 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund said goodbye to about $0.4 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to RPT Realty (NYSE:RPT). We will take a look at Assembly Biosciences Inc (NASDAQ:ASMB), Century Communities, Inc (NYSE:CCS), Innate Pharma S.A. (NASDAQ:IPHA), and Canaan Inc. (NASDAQ:CAN). This group of stocks' market values resemble RPT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASMB,18,179031,-2 CCS,17,56037,-6 IPHA,4,39880,0 CAN,3,740,1 Average,10.5,68922,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $17 million in RPT's case. Assembly Biosciences Inc (NASDAQ:ASMB) is the most popular stock in this table. On the other hand Canaan Inc. (NASDAQ:CAN) is the least popular one with only 3 bullish hedge fund positions. RPT Realty (NYSE:RPT) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately RPT wasn't nearly as popular as these 10 stocks and hedge funds that were betting on RPT were disappointed as the stock returned 15.4% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.