Hedge Funds Are Selling The RMR Group Inc. (RMR)

We at Insider Monkey have gone over 752 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of The RMR Group Inc. (NASDAQ:RMR) based on that data.

The RMR Group Inc. (NASDAQ:RMR) shareholders have witnessed a decrease in hedge fund interest recently. RMR was in 20 hedge funds’ portfolios at the end of September. There were 22 hedge funds in our database with RMR holdings at the end of the previous quarter. Our calculations also showed that RMR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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.

Arnaud Ajdler Engine Capital

Arnaud Ajdler of Engine Capital

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 review the latest hedge fund action encompassing The RMR Group Inc. (NASDAQ:RMR).

How are hedge funds trading The RMR Group Inc. (NASDAQ:RMR)?

At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in RMR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, Zimmer Partners held the most valuable stake in The RMR Group Inc. (NASDAQ:RMR), which was worth $33.8 million at the end of the third quarter. On the second spot was Hawk Ridge Management which amassed $33.8 million worth of shares. Engine Capital, Renaissance Technologies, and Indaba 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 Engine Capital allocated the biggest weight to The RMR Group Inc. (NASDAQ:RMR), around 15.45% of its 13F portfolio. Hawk Ridge Management is also relatively very bullish on the stock, designating 6.77 percent of its 13F equity portfolio to RMR.

Judging by the fact that The RMR Group Inc. (NASDAQ:RMR) has witnessed falling interest from the entirety of the hedge funds we track, logic holds that there were a few hedge funds who were dropping their positions entirely by the end of the third quarter. Intriguingly, Benjamin A. Smith’s Laurion Capital Management dropped the largest position of the “upper crust” of funds followed by Insider Monkey, totaling about $3.3 million in stock. Joseph Samuels’s fund, Islet Management, also dropped its stock, about $2.3 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to The RMR Group Inc. (NASDAQ:RMR). These stocks are The Liberty Braves Group (NASDAQ:BATRK), Linx S.A. (NYSE:LINX), State Auto Financial (NASDAQ:STFC), and US Ecology Inc. (NASDAQ:ECOL). This group of stocks’ market caps resemble RMR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BATRK 22 318173 -1
LINX 5 35694 -9
STFC 7 16867 0
ECOL 8 8206 3
Average 10.5 94735 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $187 million in RMR’s case. The Liberty Braves Group (NASDAQ:BATRK) is the most popular stock in this table. On the other hand Linx S.A. (NYSE:LINX) is the least popular one with only 5 bullish hedge fund positions. The RMR Group Inc. (NASDAQ:RMR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 RMR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RMR were disappointed as the stock returned 4.1% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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