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 RH (NYSE:RH) and determine whether hedge funds skillfully traded this stock.
RH (NYSE:RH) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. RH (NYSE:RH) was in 57 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic was previously 54. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 54 hedge funds in our database with RH holdings at the end of June. Our calculations also showed that RH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to review the key hedge fund action encompassing RH (NYSE:RH).
Daniel Sundheim of D1 Capital Partners
Do Hedge Funds Think RH Is A Good Stock To Buy Now?
At third quarter’s end, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. On the other hand, there were a total of 40 hedge funds with a bullish position in RH 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.
Among these funds, Berkshire Hathaway held the most valuable stake in RH (NYSE:RH), which was worth $1195.1 million at the end of the third quarter. On the second spot was Lone Pine Capital which amassed $860.7 million worth of shares. D1 Capital Partners, Darsana Capital Partners, and Arrowstreet Capital 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 Pelham Capital allocated the biggest weight to RH (NYSE:RH), around 11.07% of its 13F portfolio. Darsana Capital Partners is also relatively very bullish on the stock, dishing out 8.79 percent of its 13F equity portfolio to RH.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Darsana Capital Partners, managed by Anand Desai, assembled the most outsized position in RH (NYSE:RH). Darsana Capital Partners had $266.8 million invested in the company at the end of the quarter. Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management also initiated a $165.8 million position during the quarter. The other funds with brand new RH positions are John Armitage’s Egerton Capital Limited, Anand Parekh’s Alyeska Investment Group, and James Crichton’s Hitchwood Capital Management.
Let’s go over hedge fund activity in other stocks similar to RH (NYSE:RH). These stocks are Evergy, Inc. (NYSE:EVRG), Vedanta Ltd (NYSE:VEDL), SentinelOne, Inc. (NYSE:S), Cognex Corporation (NASDAQ:CGNX), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), PTC Inc (NASDAQ:PTC), and Cardinal Health, Inc. (NYSE:CAH). This group of stocks’ market values are closest to RH’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EVRG | 25 | 908059 | 4 |
| VEDL | 8 | 25575 | -2 |
| S | 35 | 2234141 | -32 |
| CGNX | 34 | 428413 | -1 |
| BMRN | 44 | 1441300 | 0 |
| PTC | 37 | 1819643 | 6 |
| CAH | 36 | 664971 | -4 |
| Average | 31.3 | 1074586 | -4.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $1075 million. That figure was $4990 million in RH’s case. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks RH (NYSE:RH) is more popular among hedge funds. Our overall hedge fund sentiment score for RH is 88. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Unfortunately, RH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on RH were disappointed as the stock returned -39.6% since the end of the third quarter (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
