Were Hedge Funds Right About Dumping Retail Value Inc. (RVI)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Retail Value Inc. (NYSE:RVI) and determine whether the smart money was really smart about this stock.

Is Retail Value Inc. (NYSE:RVI) a bargain? Hedge funds were taking a bearish view. The number of long hedge fund bets retreated by 3 lately. Our calculations also showed that RVI 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). RVI was in 13 hedge funds’ portfolios at the end of March. There were 16 hedge funds in our database with RVI positions at the end of the previous quarter.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Christian Leone of Luxor Capital Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 15 largest gold producing countries to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind we’re going to go over the key hedge fund action regarding Retail Value Inc. (NYSE:RVI).

What have hedge funds been doing with Retail Value Inc. (NYSE:RVI)?

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the fourth quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in RVI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Christian Leone’s Luxor Capital Group has the biggest position in Retail Value Inc. (NYSE:RVI), worth close to $37.4 million, comprising 1.1% of its total 13F portfolio. Coming in second is Derek C. Schrier of Indaba Capital Management, with a $15.2 million position; 8.2% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions consist of Renaissance Technologies, David Brown’s Hawk Ridge Management and Noah Levy and Eugene Dozortsev’s Newtyn Management. In terms of the portfolio weights assigned to each position Indaba Capital Management allocated the biggest weight to Retail Value Inc. (NYSE:RVI), around 8.21% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, setting aside 1.13 percent of its 13F equity portfolio to RVI.

Due to the fact that Retail Value Inc. (NYSE:RVI) has faced declining sentiment from hedge fund managers, logic holds that there was a specific group of fund managers who sold off their full holdings by the end of the first quarter. Interestingly, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC cut the largest stake of the 750 funds watched by Insider Monkey, valued at about $3.4 million in stock. Harry Gail’s fund, Harspring Capital Management, also dropped its stock, about $2.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the first quarter.

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. These stocks are Macatawa Bank Corporation (NASDAQ:MCBC), Solaris Oilfield Infrastructure, Inc. (NYSE:SOI), Stemline Therapeutics Inc (NASDAQ:STML), and GTY Technology Holdings, Inc. (NASDAQ:GTYH). All of these stocks’ market caps are closest to RVI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MCBC 10 19243 2
SOI 11 29159 -1
STML 15 75214 0
GTYH 5 14885 0
Average 10.25 34625 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $72 million in RVI’s case. Stemline Therapeutics Inc (NASDAQ:STML) is the most popular stock in this table. On the other hand GTY Technology Holdings, Inc. (NASDAQ:GTYH) is the least popular one with only 5 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. 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 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately RVI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RVI were disappointed as the stock returned 1.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Follow Retail Value Inc. (NYSE:RVIC)

Disclosure: None. This article was originally published at Insider Monkey.