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Hedge Funds Keep Buying Redfin Corporation (RDFN)

In this article you are going to find out whether hedge funds think Redfin Corporation (NASDAQ:RDFN) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Redfin Corporation (NASDAQ:RDFN) was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. RDFN has seen an increase in hedge fund interest lately. There were 15 hedge funds in our database with RDFN positions at the end of the previous quarter. Our calculations also showed that RDFN 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Driehaus of Driehaus 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. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We 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 view the latest hedge fund action regarding Redfin Corporation (NASDAQ:RDFN).

How are hedge funds trading Redfin Corporation (NASDAQ:RDFN)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in RDFN a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is RDFN A Good Stock To Buy?

The largest stake in Redfin Corporation (NASDAQ:RDFN) was held by Ancient Art (Teton Capital), which reported holding $45.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $17.1 million position. Other investors bullish on the company included Atreides Management, Point72 Asset Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Ancient Art (Teton Capital) allocated the biggest weight to Redfin Corporation (NASDAQ:RDFN), around 7.39% of its 13F portfolio. Atreides Management is also relatively very bullish on the stock, designating 3.64 percent of its 13F equity portfolio to RDFN.

As aggregate interest increased, specific money managers were breaking ground themselves. Driehaus Capital, managed by Richard Driehaus, assembled the biggest position in Redfin Corporation (NASDAQ:RDFN). Driehaus Capital had $2.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $1.5 million investment in the stock during the quarter. The following funds were also among the new RDFN investors: Principal Global Investors’s Columbus Circle Investors, John Overdeck and David Siegel’s Two Sigma Advisors, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s go over hedge fund activity in other stocks similar to Redfin Corporation (NASDAQ:RDFN). These stocks are Progress Software Corporation (NASDAQ:PRGS), STAAR Surgical Company (NASDAQ:STAA), Primo Water Corporation (NYSE:PRMW), and Pebblebrook Hotel Trust (NYSE:PEB). This group of stocks’ market valuations match RDFN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PRGS 22 197676 2
STAA 21 519115 -2
PRMW 36 463146 23
PEB 10 224467 -12
Average 22.25 351101 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $351 million. That figure was $107 million in RDFN’s case. Primo Water Corporation (NYSE:PRMW) is the most popular stock in this table. On the other hand Pebblebrook Hotel Trust (NYSE:PEB) is the least popular one with only 10 bullish hedge fund positions. Redfin Corporation (NASDAQ:RDFN) 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on RDFN as the stock returned 124.9% 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.

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