How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Revolve Group, Inc. (NYSE:RVLV) and determine whether hedge funds had an edge regarding this stock.
Is Revolve Group, Inc. (NYSE:RVLV) a healthy stock for your portfolio? The best stock pickers were reducing their bets on the stock. The number of long hedge fund bets went down by 1 lately. Our calculations also showed that RVLV 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.
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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. Keeping this in mind let’s analyze the new hedge fund action encompassing Revolve Group, Inc. (NYSE:RVLV).
What does smart money think about Revolve Group, Inc. (NYSE:RVLV)?
At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RVLV 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.
Among these funds, Citadel Investment Group held the most valuable stake in Revolve Group, Inc. (NYSE:RVLV), which was worth $4.4 million at the end of the third quarter. On the second spot was Marshall Wace LLP which amassed $1.8 million worth of shares. Point72 Asset Management, Springhouse Capital Management, and D E Shaw 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 Springhouse Capital Management allocated the biggest weight to Revolve Group, Inc. (NYSE:RVLV), around 1.34% of its 13F portfolio. Kamunting Street Capital is also relatively very bullish on the stock, setting aside 0.52 percent of its 13F equity portfolio to RVLV.
Because Revolve Group, Inc. (NYSE:RVLV) has faced falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies who were dropping their positions entirely last quarter. At the top of the heap, Nancy Zevenbergen’s Zevenbergen Capital Investments dropped the biggest stake of the 750 funds watched by Insider Monkey, comprising close to $13 million in stock, and Alex Sacerdote’s Whale Rock Capital Management was right behind this move, as the fund said goodbye to about $9 million worth. These transactions are interesting, as total hedge fund interest dropped by 1 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Revolve Group, Inc. (NYSE:RVLV) but similarly valued. These stocks are Inseego Corp. (NASDAQ:INSG), BELLUS Health Inc. (NASDAQ:BLU), Translate Bio, Inc. (NASDAQ:TBIO), and Federal Agricultural Mortgage Corp. (NYSE:AGM). This group of stocks’ market valuations are similar to RVLV’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| INSG | 12 | 18676 | 4 |
| BLU | 14 | 156516 | -2 |
| TBIO | 7 | 224195 | -2 |
| AGM | 9 | 20831 | -1 |
| Average | 10.5 | 105055 | -0.25 |
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 $105 million. That figure was $11 million in RVLV’s case. BELLUS Health Inc. (NASDAQ:BLU) is the most popular stock in this table. On the other hand Translate Bio, Inc. (NASDAQ:TBIO) is the least popular one with only 7 bullish hedge fund positions. Revolve Group, Inc. (NYSE:RVLV) is not the least popular stock in this group but hedge fund interest is still below 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 and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on RVLV as the stock returned 72% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
