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Hedge Funds Are Buying RTW Retailwinds, Inc. (RTW)

“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards RTW Retailwinds, Inc. (NYSE:RTW) and see how it was affected.

Is RTW Retailwinds, Inc. (NYSE:RTW) an outstanding stock to buy now? The best stock pickers are becoming hopeful. The number of long hedge fund bets moved up by 1 recently. Our calculations also showed that RTW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). RTW was in 7 hedge funds’ portfolios at the end of September. There were 6 hedge funds in our database with RTW holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
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’ 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to view the fresh hedge fund action regarding RTW Retailwinds, Inc. (NYSE:RTW).

What have hedge funds been doing with RTW Retailwinds, Inc. (NYSE:RTW)?

At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the second quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in RTW a year ago. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in RTW Retailwinds, Inc. (NYSE:RTW), which was worth $2.4 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $1.4 million worth of shares. Arrowstreet Capital, Emancipation Capital, and Winton Capital 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 Emancipation Capital allocated the biggest weight to RTW Retailwinds, Inc. (NYSE:RTW), around 0.45% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to RTW.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Emancipation Capital, managed by Charles Frumberg, assembled the largest position in RTW Retailwinds, Inc. (NYSE:RTW). Emancipation Capital had $0.1 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $0.1 million investment in the stock during the quarter.

Let’s also examine hedge fund activity in other stocks similar to RTW Retailwinds, Inc. (NYSE:RTW). These stocks are Brainstorm Cell Therapeutics Inc. (NASDAQ:BCLI), vTv Therapeutics Inc (NASDAQ:VTVT), Resonant Inc. (NASDAQ:RESN), and Identiv, Inc. (NASDAQ:INVE). All of these stocks’ market caps resemble RTW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCLI 2 1452 -1
VTVT 2 62 0
RESN 2 685 1
INVE 3 6330 1
Average 2.25 2132 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $4 million in RTW’s case. Identiv, Inc. (NASDAQ:INVE) is the most popular stock in this table. On the other hand Brainstorm Cell Therapeutics Inc. (NASDAQ:BCLI) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks RTW Retailwinds, Inc. (NYSE:RTW) 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 RTW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RTW were disappointed as the stock returned -2.2% 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.

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