Hedge Funds Are Dumping B. Riley Financial, Inc. (RILY)

In this article we will check out the progression of hedge fund sentiment towards B. Riley Financial, Inc. (NASDAQ:RILY) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is B. Riley Financial, Inc. (NASDAQ:RILY) a buy right now? Money managers are taking a pessimistic view. The number of long hedge fund positions went down by 2 lately. Our calculations also showed that RILY 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.

In the eyes of most traders, hedge funds are seen as worthless, outdated financial tools of the past. While there are greater than 8000 funds trading today, Our experts look at the aristocrats of this club, about 850 funds. Most estimates calculate that this group of people preside over the lion’s share of the hedge fund industry’s total capital, and by shadowing their first-class picks, Insider Monkey has come up with numerous investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 let’s review the key hedge fund action encompassing B. Riley Financial, Inc. (NASDAQ:RILY).

How have hedgies been trading B. Riley Financial, Inc. (NASDAQ:RILY)?

Heading into the second quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RILY over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is RILY A Good Stock To Buy?

The largest stake in B. Riley Financial, Inc. (NASDAQ:RILY) was held by Nokomis Capital, which reported holding $24.7 million worth of stock at the end of September. It was followed by Elliott Management with a $21.6 million position. Other investors bullish on the company included Royce & Associates, Tudor Investment Corp, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Nokomis Capital allocated the biggest weight to B. Riley Financial, Inc. (NASDAQ:RILY), around 11.85% of its 13F portfolio. Cruiser Capital Advisors is also relatively very bullish on the stock, setting aside 1.08 percent of its 13F equity portfolio to RILY.

Judging by the fact that B. Riley Financial, Inc. (NASDAQ:RILY) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few fund managers who were dropping their entire stakes by the end of the first quarter. Interestingly, Mark Broach’s Manatuck Hill Partners dropped the largest investment of the 750 funds followed by Insider Monkey, totaling close to $1.5 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dropped its stock, about $1.3 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to B. Riley Financial, Inc. (NASDAQ:RILY). We will take a look at Vectrus Inc (NYSE:VEC), Kala Pharmaceuticals, Inc. (NASDAQ:KALA), Bain Capital Specialty Finance, Inc. (NYSE:BCSF), and Hawaiian Holdings, Inc. (NASDAQ:HA). This group of stocks’ market caps are closest to RILY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VEC 15 55085 2
KALA 18 183294 8
BCSF 8 13111 0
HA 19 45639 4
Average 15 74282 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $72 million in RILY’s case. Hawaiian Holdings, Inc. (NASDAQ:HA) is the most popular stock in this table. On the other hand Bain Capital Specialty Finance, Inc. (NYSE:BCSF) is the least popular one with only 8 bullish hedge fund positions. B. Riley Financial, Inc. (NASDAQ:RILY) 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. 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately RILY wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RILY investors were disappointed as the stock returned 11.4% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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