Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
Rafael Holdings, Inc. (NYSE:RFL) investors should be aware of a decrease in enthusiasm from smart money in recent months. Our calculations also showed that RFL 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.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. We're going to view the key hedge fund action surrounding Rafael Holdings, Inc. (NYSE:RFL).
What does smart money think about Rafael Holdings, Inc. (NYSE:RFL)?
At the end of the second quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in RFL over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Rafael Holdings, Inc. (NYSE:RFL), which was worth $15.5 million at the end of the second quarter. On the second spot was Nantahala Capital Management which amassed $14 million worth of shares. Moreover, Newtyn Management, Kahn Brothers, and Horizon Asset Management were also bullish on Rafael Holdings, Inc. (NYSE:RFL), allocating a large percentage of their portfolios to this stock.
Because Rafael Holdings, Inc. (NYSE:RFL) has faced falling interest from the entirety of the hedge funds we track, logic holds that there were a few hedge funds that elected to cut their full holdings last quarter. At the top of the heap, Israel Englander's Millennium Management cut the biggest position of all the hedgies watched by Insider Monkey, totaling about $1 million in stock. Michael Gelband's fund, ExodusPoint Capital, also cut its stock, about $0.3 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 2 funds last quarter.
Let's check out hedge fund activity in other stocks similar to Rafael Holdings, Inc. (NYSE:RFL). These stocks are Business First Bancshares, Inc. (NASDAQ:BFST), Forum Energy Technologies Inc (NYSE:FET), GTY Technology Holdings, Inc. (NASDAQ:GTYH), and Altisource Portfolio Solutions S.A. (NASDAQ:ASPS). All of these stocks' market caps resemble RFL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BFST,1,16390,0 FET,19,58008,3 GTYH,4,23213,-5 ASPS,9,48629,-1 Average,8.25,36560,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $56 million in RFL's case. Forum Energy Technologies Inc (NYSE:FET) is the most popular stock in this table. On the other hand Business First Bancshares, Inc. (NASDAQ:BFST) is the least popular one with only 1 bullish hedge fund positions. Rafael Holdings, Inc. (NYSE:RFL) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately RFL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RFL investors were disappointed as the stock returned -27.1% during the third 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.