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. One of these stocks was RealPage, Inc. (NASDAQ:RP).
Is RealPage, Inc. (NASDAQ:RP) the right investment to pursue these days? Hedge funds are becoming less hopeful. The number of bullish hedge fund bets were trimmed by 2 recently. Our calculations also showed that RP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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 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.
[caption id="attachment_339739" align="aligncenter" width="450"] Ricky Sandler of Eminence Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the latest hedge fund action encompassing RealPage, Inc. (NASDAQ:RP).
How have hedgies been trading RealPage, Inc. (NASDAQ:RP)?
At Q3's end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in RP a year ago. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Stockbridge Partners held the most valuable stake in RealPage, Inc. (NASDAQ:RP), which was worth $189.8 million at the end of the third quarter. On the second spot was Eminence Capital which amassed $158.8 million worth of shares. Echo Street Capital Management, Junto Capital Management, and Point72 Asset Management 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 Stockbridge Partners allocated the biggest weight to RealPage, Inc. (NASDAQ:RP), around 7.53% of its portfolio. Lucha Capital Management is also relatively very bullish on the stock, dishing out 5.1 percent of its 13F equity portfolio to RP.
Because RealPage, Inc. (NASDAQ:RP) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there exists a select few fund managers that slashed their positions entirely heading into Q4. It's worth mentioning that Panayotis Takis Sparaggis's Alkeon Capital Management dumped the largest stake of the 750 funds monitored by Insider Monkey, valued at about $26.6 million in stock, and Jay Genzer's Thames Capital Management was right behind this move, as the fund sold off about $16.9 million worth. These moves are important to note, as total hedge fund interest dropped by 2 funds heading into Q4.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as RealPage, Inc. (NASDAQ:RP) but similarly valued. We will take a look at Casey's General Stores, Inc. (NASDAQ:CASY), Guardant Health, Inc. (NASDAQ:GH), AECOM (NYSE:ACM), and Cemex SAB de CV (NYSE:CX). This group of stocks' market values are closest to RP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CASY,16,103612,-2 GH,24,410215,5 ACM,26,956455,4 CX,9,59628,-2 Average,18.75,382478,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $382 million. That figure was $569 million in RP's case. AECOM (NYSE:ACM) is the most popular stock in this table. On the other hand Cemex SAB de CV (NYSE:CX) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks RealPage, Inc. (NASDAQ:RP) is more popular among hedge funds. 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 RP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RP were disappointed as the stock returned -12.5% 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.