Here is What Hedge Funds Think About Real Industry Inc (RELY)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Real Industry Inc (NASDAQ:RELY).

Hedge fund interest in Real Industry Inc (NASDAQ:RELY) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Bankwell Financial Group Inc (NASDAQ:BWFG), Commercial Vehicle Group, Inc. (NASDAQ:CVGI), and Allied Motion Technologies, Inc. (NASDAQ:AMOT) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

With all of this in mind, let’s view the new action encompassing Real Industry Inc (NASDAQ:RELY).

What have hedge funds been doing with Real Industry Inc (NASDAQ:RELY)?

Heading into the fourth quarter of 2016, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the second quarter of 2016. By comparison, 6 hedge funds held shares or bullish call options in RELY heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Private Capital Management, led by Gregg J. Powers, holds the most valuable position in Real Industry Inc (NASDAQ:RELY). According to regulatory filings, the fund has a $6.9 million position in the stock, comprising 1% of its 13F portfolio. Coming in second is GMT Capital, led by Thomas E. Claugus, holding a $0.9 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions include William Charters and Mario Marcon’s Sabal Capital Management, and Millennium Management, one of the 10 largest hedge funds in the world. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Ariel Investments. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Sabal Capital Management).

Let’s now take a look at hedge fund activity in other stocks similar to Real Industry Inc (NASDAQ:RELY). These stocks are Bankwell Financial Group Inc (NASDAQ:BWFG), Commercial Vehicle Group, Inc. (NASDAQ:CVGI), Allied Motion Technologies, Inc. (NASDAQ:AMOT), and Applied Genetic Technologies Corp (NASDAQ:AGTC). This group of stocks’ market caps are closest to RELY’s market cap.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $10 million in RELY’s case. Commercial Vehicle Group, Inc. (NASDAQ:CVGI) is the most popular stock in this table. On the other hand Bankwell Financial Group Inc (NASDAQ:BWFG) is the least popular one with only 4 bullish hedge fund positions. Real Industry Inc (NASDAQ:RELY) 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. In this regard CVGI might be a better candidate to consider taking a long position in.

Disclosure: none.