We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Retail Value Inc. (NYSE:RVI).
Is RVI a good stock to buy now? Retail Value Inc. (NYSE:RVI) has experienced a decrease in enthusiasm from smart money lately. Retail Value Inc. (NYSE:RVI) was in 15 hedge funds’ portfolios at the end of September. The all time high for this statistic is 17. Our calculations also showed that RVI isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to take a look at the key hedge fund action encompassing Retail Value Inc. (NYSE:RVI).
Do Hedge Funds Think RVI Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in RVI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Luxor Capital Group was the largest shareholder of Retail Value Inc. (NYSE:RVI), with a stake worth $38.4 million reported as of the end of September. Trailing Luxor Capital Group was Indaba Capital Management, which amassed a stake valued at $16.6 million. Hawk Ridge Management, Renaissance Technologies, and Newtyn Management 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 Indaba Capital Management allocated the biggest weight to Retail Value Inc. (NYSE:RVI), around 5.28% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, designating 0.77 percent of its 13F equity portfolio to RVI.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ExodusPoint Capital. 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 in this case because none of the 750+ hedge funds tracked by Insider Monkey identified RVI as a viable investment and initiated a position in the stock.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Retail Value Inc. (NYSE:RVI) but similarly valued. We will take a look at Chiasma Inc (NASDAQ:CHMA), Checkmate Pharmaceuticals, Inc. (NASDAQ:CMPI), NuZee, Inc. (NASDAQ:NUZE), Wrap Technologies, Inc. (NASDAQ:WRTC), Ciner Resources LP (NYSE:CINR), ChromaDex Corporation (NASDAQ:CDXC), and Financial Institutions, Inc. (NASDAQ:FISI). This group of stocks’ market valuations are closest to RVI’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.1 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $75 million in RVI’s case. Chiasma Inc (NASDAQ:CHMA) is the most popular stock in this table. On the other hand NuZee, Inc. (NASDAQ:NUZE) is the least popular one with only 1 bullish hedge fund positions. Retail Value Inc. (NYSE:RVI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RVI is 80.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on RVI as the stock returned 11.4% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.