Is RTI Surgical Holdings, Inc. (RTIX) Going To Burn These Hedge Funds ?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is RTI Surgical Holdings, Inc. (NASDAQ:RTIX), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

RTI Surgical Holdings, Inc. (NASDAQ:RTIX) shareholders have witnessed an increase in enthusiasm from smart money recently. RTIX was in 14 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with RTIX holdings at the end of the previous quarter. Our calculations also showed that RTIX 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’ 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 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 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.

Chuck Royce

Chuck Royce of Royce & Associates

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. Let’s view the key hedge fund action encompassing RTI Surgical Holdings, Inc. (NASDAQ:RTIX).

How are hedge funds trading RTI Surgical Holdings, Inc. (NASDAQ:RTIX)?

At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RTIX over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Among these funds, Healthcor Management held the most valuable stake in RTI Surgical Holdings, Inc. (NASDAQ:RTIX), which was worth $6.2 million at the end of the third quarter. On the second spot was Rock Springs Capital Management which amassed $5.6 million worth of shares. Renaissance Technologies, Royce & Associates, 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 Rutabaga Capital Management allocated the biggest weight to RTI Surgical Holdings, Inc. (NASDAQ:RTIX), around 0.59% of its 13F portfolio. Healthcor Management is also relatively very bullish on the stock, earmarking 0.23 percent of its 13F equity portfolio to RTIX.

As industrywide interest jumped, some big names have jumped into RTI Surgical Holdings, Inc. (NASDAQ:RTIX) headfirst. Healthcor Management, managed by Arthur B Cohen and Joseph Healey, created the most outsized position in RTI Surgical Holdings, Inc. (NASDAQ:RTIX). Healthcor Management had $6.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $0.3 million position during the quarter. The only other fund with a new position in the stock is Andre F. Perold’s HighVista Strategies.

Let’s go over hedge fund activity in other stocks similar to RTI Surgical Holdings, Inc. (NASDAQ:RTIX). These stocks are DHI Group Inc. (NYSE:DHX), Maui Land & Pineapple Company, Inc. (NYSE:MLP), Geospace Technologies Corporation (NASDAQ:GEOS), and Eros International plc (NYSE:EROS). This group of stocks’ market valuations are closest to RTIX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DHX 17 57742 1
MLP 2 6750 0
GEOS 6 10404 0
EROS 6 12518 -2
Average 7.75 21854 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $25 million in RTIX’s case. DHI Group Inc. (NYSE:DHX) is the most popular stock in this table. On the other hand Maui Land & Pineapple Company, Inc. (NYSE:MLP) is the least popular one with only 2 bullish hedge fund positions. RTI Surgical Holdings, 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. 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 RTIX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RTIX were disappointed as the stock returned -35.1% 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.