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Were Hedge Funds Right About Dumping Redfin Corporation (RDFN)?

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With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter of 2021. One of these stocks was Redfin Corporation (NASDAQ:RDFN).

Is Redfin Corporation (NASDAQ:RDFN) the right pick for your portfolio? Prominent investors were in a bearish mood. The number of bullish hedge fund bets fell by 3 recently. Redfin Corporation (NASDAQ:RDFN) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 28. Our calculations also showed that RDFN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber Hudson Bay Capital Management
Sander Gerber Hudson Bay Capital Management

Sander Gerber of Hudson Bay Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let's review the fresh hedge fund action surrounding Redfin Corporation (NASDAQ:RDFN).

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

At Q1's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RDFN over the last 23 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is RDFN A Good Stock To Buy?
Is RDFN A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bares Capital Management, managed by Brian Bares, holds the biggest position in Redfin Corporation (NASDAQ:RDFN). Bares Capital Management has a $341.6 million position in the stock, comprising 6.4% of its 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $28 million call position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism encompass Gavin Baker's Atreides Management, John Overdeck and David Siegel's Two Sigma Advisors and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Bares Capital Management allocated the biggest weight to Redfin Corporation (NASDAQ:RDFN), around 6.39% of its 13F portfolio. Guardian Point Capital is also relatively very bullish on the stock, setting aside 2.09 percent of its 13F equity portfolio to RDFN.

Seeing as Redfin Corporation (NASDAQ:RDFN) has experienced declining sentiment from hedge fund managers, it's easy to see that there was a specific group of funds who were dropping their positions entirely by the end of the first quarter. It's worth mentioning that Renaissance Technologies dumped the biggest stake of the 750 funds monitored by Insider Monkey, valued at close to $57.1 million in stock. Richard Driehaus's fund, Driehaus Capital, also said goodbye to its stock, about $7.1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the first quarter.

Let's go over hedge fund activity in other stocks similar to Redfin Corporation (NASDAQ:RDFN). We will take a look at Hanesbrands Inc. (NYSE:HBI), Ballard Power Systems Inc. (NASDAQ:BLDP), MINISO Group Holding Limited (NYSE:MNSO), GW Pharmaceuticals plc (NASDAQ:GWPH), Post Holdings Inc (NYSE:POST), Synovus Financial Corp. (NYSE:SNV), and Dicks Sporting Goods Inc (NYSE:DKS). This group of stocks' market caps resemble RDFN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HBI,32,977516,5 BLDP,18,125641,-2 MNSO,12,87616,-6 GWPH,40,2735520,23 POST,33,1567551,6 SNV,30,264409,-3 DKS,31,852354,-11 Average,28,944372,1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $944 million. That figure was $435 million in RDFN's case. GW Pharmaceuticals plc (NASDAQ:GWPH) is the most popular stock in this table. On the other hand MINISO Group Holding Limited (NYSE:MNSO) is the least popular one with only 12 bullish hedge fund positions. Redfin Corporation (NASDAQ:RDFN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RDFN is 32. 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 negative signal and 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately RDFN wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); RDFN investors were disappointed as the stock returned -12.8% since the end of March (through 7/23) 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 most of these stocks already outperformed the market in 2021.

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