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Hedge Funds Aren’t Comfortable In RH (RH)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of RH (NYSE:RH).

RH (NYSE:RH) has seen a decrease in hedge fund interest recently. Our calculations also showed that RH 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 21st century investor’s toolkit there are numerous tools market participants put to use to value stocks. Some of the best tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the top money managers can outperform the broader indices by a very impressive amount (see the details here).

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this oneWe interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the key hedge fund action surrounding RH (NYSE:RH).

Hedge fund activity in RH (NYSE:RH)

At Q1’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the previous quarter. On the other hand, there were a total of 36 hedge funds with a bullish position in RH a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Berkshire Hathaway was the largest shareholder of RH (NYSE:RH), with a stake worth $171.6 million reported as of the end of September. Trailing Berkshire Hathaway was Renaissance Technologies, which amassed a stake valued at $128.1 million. Nantahala Capital Management, Citadel Investment Group, and MIG Capital 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 Berylson Capital Partners allocated the biggest weight to RH (NYSE:RH), around 8.8% of its 13F portfolio. MIK Capital is also relatively very bullish on the stock, earmarking 3.85 percent of its 13F equity portfolio to RH.

Because RH (NYSE:RH) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there were a few hedgies that slashed their positions entirely last quarter. At the top of the heap, Ken Heebner’s Capital Growth Management dropped the largest position of all the hedgies monitored by Insider Monkey, comprising close to $30.3 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund sold off about $27.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 8 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as RH (NYSE:RH) but similarly valued. We will take a look at Liberty Latin America Ltd. (NASDAQ:LILA), Lithia Motors Inc (NYSE:LAD), Kennedy-Wilson Holdings Inc (NYSE:KW), and Acushnet Holdings Corp. (NYSE:GOLF). This group of stocks’ market caps match RH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LILA 12 98864 1
LAD 27 388450 -2
KW 22 308206 5
GOLF 12 14131 -4
Average 18.25 202413 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $202 million. That figure was $549 million in RH’s case. Lithia Motors Inc (NYSE:LAD) is the most popular stock in this table. On the other hand Liberty Latin America Ltd. (NASDAQ:LILA) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks RH (NYSE:RH) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on RH as the stock returned 115.9% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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