Here is What Hedge Funds Think About RTI Surgical Inc. (RTIX)

The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at RTI Surgical Inc. (NASDAQ:RTIX) from the perspective of those elite funds.

Hedge fund interest in RTI Surgical Inc. (NASDAQ:RTIX) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article, we will examine companies such as Neovasc Inc. (NASDAQ:NVCN), Baldwin & Lyons Inc (NASDAQ:BWINB), and Del Frisco’s Restaurant Group Inc (NASDAQ:DFRG) to gather more data points.

If you’d ask most market participants, hedge funds are viewed as worthless, outdated financial tools of the past. While there are over an 8000 funds trading at present, Our experts hone in on the masters of this club, approximately 700 funds. It is estimated that this group of investors controls most of the smart money’s total capital, and by keeping track of their unrivaled equity investments, Insider Monkey has unearthed a number of investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points per year for a decade in their back tests.

With all of this in mind, we’re going to take a peek at the latest action regarding RTI Surgical Inc. (NASDAQ:RTIX).

How have hedgies been trading RTI Surgical Inc. (NASDAQ:RTIX)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the second quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Justin John Ferayorni’s Tamarack Capital Management has the number one position in RTI Surgical Inc. (NASDAQ:RTIX), worth close to $11.1 million, corresponding to 1.3% of its total 13F portfolio. The second largest stake is held by Kris Jenner, Gordon Bussard, Graham McPhail of Rock Springs Capital Management, with a $10.6 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish encompass Chuck Royce’s Royce & Associates, D E Shaw, and Israel Englander’s Millennium Management.

We view hedge fund selling in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: DAFNA Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically, a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case here because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Algert Coldiron Investors).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as RTI Surgical Inc. (NASDAQ:RTIX) but similarly valued. These stocks are Neovasc Inc. (NASDAQ:NVCN), Baldwin & Lyons Inc (NASDAQ:BWINB), Del Frisco’s Restaurant Group Inc (NASDAQ:DFRG), and Hampton Roads Bankshares, Inc. (NASDAQ:HMPR). This group of stocks’ market valuations matches RTI Surgical Inc. (NASDAQ:RTIX)’s market valuation.

As you can see, these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $44 million in RTI Surgical Inc. (NASDAQ:RTIX)’s case. Del Frisco’s Restaurant Group Inc (NASDAQ:DFRG) is the most popular stock in this table. On the other hand, Baldwin & Lyons Inc (NASDAQ:BWINB) is the least popular one with only 5 bullish hedge fund positions. RTI Surgical Inc. (NASDAQ:RTIX) 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. In this regard, Del Frisco’s Restaurant Group Inc (NASDAQ:DFRG) might be a better candidate to consider a long position.