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Were Hedge Funds Right About Retail Opportunity Investments Corp (ROIC)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Retail Opportunity Investments Corp (NASDAQ:ROIC) and determine whether hedge funds skillfully traded this stock.

Is Retail Opportunity Investments Corp (NASDAQ:ROIC) worth your attention right now? Prominent investors were in a bearish mood. The number of long hedge fund bets were cut by 3 in recent months. Our calculations also showed that ROIC 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). ROIC was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with ROIC holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a glance at the key hedge fund action regarding Retail Opportunity Investments Corp (NASDAQ:ROIC).

Hedge fund activity in Retail Opportunity Investments Corp (NASDAQ:ROIC)

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the fourth quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in ROIC a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

The largest stake in Retail Opportunity Investments Corp (NASDAQ:ROIC) was held by Renaissance Technologies, which reported holding $14 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $7.4 million position. Other investors bullish on the company included Balyasny Asset Management, Winton Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Tudor Investment Corp allocated the biggest weight to Retail Opportunity Investments Corp (NASDAQ:ROIC), around 0.12% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.11 percent of its 13F equity portfolio to ROIC.

Since Retail Opportunity Investments Corp (NASDAQ:ROIC) has witnessed bearish sentiment from the smart money, it’s easy to see that there exists a select few funds that elected to cut their full holdings by the end of the first quarter. It’s worth mentioning that Matthew Tewksbury’s Stevens Capital Management said goodbye to the largest position of all the hedgies followed by Insider Monkey, valued at an estimated $0.9 million in stock. Mika Toikka’s fund, AlphaCrest Capital Management, also said goodbye to its stock, about $0.8 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 now take a look at hedge fund activity in other stocks similar to Retail Opportunity Investments Corp (NASDAQ:ROIC). We will take a look at Fluor Corporation (NYSE:FLR), Norbord Inc. (NYSE:OSB), Black Stone Minerals LP (NYSE:BSM), and Callaway Golf Company (NYSE:ELY). This group of stocks’ market valuations match ROIC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FLR 24 94067 0
OSB 12 19441 -4
BSM 3 2190 -1
ELY 23 120223 3
Average 15.5 58980 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $44 million in ROIC’s case. Fluor Corporation (NYSE:FLR) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 3 bullish hedge fund positions. Retail Opportunity Investments Corp (NASDAQ:ROIC) 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately ROIC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ROIC were disappointed as the stock returned 21.6% 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.

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