Did Hedge Funds Make The Right Call On RealPage, Inc. (RP)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of RealPage, Inc. (NASDAQ:RP) based on that data and determine whether they were really smart about the stock.

Is RealPage, Inc. (NASDAQ:RP) the right investment to pursue these days? The smart money was becoming less hopeful. The number of long hedge fund positions were cut by 7 recently. Our calculations also showed that RP 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).

Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Josh Friedman Canyon Capital

Joshua Friedman of Canyon Capital Advisors

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. With all of this in mind we’re going to take a peek at the recent hedge fund action surrounding RealPage, Inc. (NASDAQ:RP).

What does smart money think about RealPage, Inc. (NASDAQ:RP)?

Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in RP over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is RP A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Stockbridge Partners, managed by Sharlyn C. Heslam, holds the biggest position in RealPage, Inc. (NASDAQ:RP). Stockbridge Partners has a $189.2 million position in the stock, comprising 7.5% of its 13F portfolio. The second most bullish fund manager is Eminence Capital, managed by Ricky Sandler, which holds a $183.1 million position; 2% of its 13F portfolio is allocated to the stock. Remaining members of the smart money with similar optimism comprise Greg Poole’s Echo Street Capital Management, Kevin Oram and Peter Uddo’s Praesidium Investment Management Company and Amit Nitin Doshi’s Harbor Spring Capital. In terms of the portfolio weights assigned to each position Banbury Partners allocated the biggest weight to RealPage, Inc. (NASDAQ:RP), around 7.71% of its 13F portfolio. Stockbridge Partners is also relatively very bullish on the stock, dishing out 7.5 percent of its 13F equity portfolio to RP.

Seeing as RealPage, Inc. (NASDAQ:RP) has faced declining sentiment from hedge fund managers, it’s easy to see that there were a few funds who sold off their full holdings heading into Q4. At the top of the heap, Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors cut the largest investment of the 750 funds monitored by Insider Monkey, totaling an estimated $48.8 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dropped about $18.5 million worth. These moves are important to note, as total hedge fund interest fell by 7 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as RealPage, Inc. (NASDAQ:RP) but similarly valued. These stocks are Kinross Gold Corporation (NYSE:KGC), Pentair plc (NYSE:PNR), Morningstar, Inc. (NASDAQ:MORN), and Kemper Corporation (NYSE:KMPR). This group of stocks’ market values resemble RP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KGC 28 447018 3
PNR 29 391097 3
MORN 13 235862 -8
KMPR 13 48502 -7
Average 20.75 280620 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $281 million. That figure was $604 million in RP’s case. Pentair plc (NYSE:PNR) is the most popular stock in this table. On the other hand Morningstar, Inc. (NASDAQ:MORN) is the least popular one with only 13 bullish hedge fund positions. RealPage, Inc. (NASDAQ:RP) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 15.5 percentage points. Hedge funds were also right about betting on RP, though not to the same extent, as the stock returned 22.8% during the second quarter and outperformed the market as well.

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