The market has been volatile as the Federal Reserve continues its rate hikes to normalize the interest rates. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points through November 16th. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, and the funds’ movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of Realogy Holdings Corp (NYSE:RLGY) and find out how it is affected by hedge funds’ moves.
Realogy Holdings Corp (NYSE:RLGY) shareholders have witnessed an increase in support from the world’s most elite money managers of late. Our calculations also showed that RLGY isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s view the new hedge fund action surrounding Realogy Holdings Corp (NYSE:RLGY).
How have hedgies been trading Realogy Holdings Corp (NYSE:RLGY)?
Heading into the fourth quarter of 2018, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RLGY over the last 13 quarters. 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, Southeastern Asset Management held the most valuable stake in Realogy Holdings Corp (NYSE:RLGY), which was worth $196.4 million at the end of the third quarter. On the second spot was Okumus Fund Management which amassed $176.9 million worth of shares. Moreover, Tremblant Capital, Pzena Investment Management, and Tremblant Capital were also bullish on Realogy Holdings Corp (NYSE:RLGY), allocating a large percentage of their portfolios to this stock.
Consequently, some big names were breaking ground themselves. Tremblant Capital, managed by Brett Barakett, initiated the biggest call position in Realogy Holdings Corp (NYSE:RLGY). Tremblant Capital had $48 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also initiated a $6.9 million position during the quarter. The other funds with brand new RLGY positions are Ken Griffin’s Citadel Investment Group, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, and Benjamin A. Smith’s Laurion Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Realogy Holdings Corp (NYSE:RLGY) but similarly valued. We will take a look at WNS (Holdings) Limited (NYSE:WNS), Avis Budget Group Inc. (NASDAQ:CAR), Dorman Products Inc. (NASDAQ:DORM), and Five9 Inc (NASDAQ:FIVN). This group of stocks’ market valuations match RLGY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WNS | 14 | 178577 | -3 |
| CAR | 29 | 809940 | 2 |
| DORM | 11 | 72254 | 1 |
| FIVN | 25 | 463899 | -1 |
| Average | 19.75 | 381168 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $381 million. That figure was $723 million in RLGY’s case. Avis Budget Group Inc. (NASDAQ:CAR) is the most popular stock in this table. On the other hand Dorman Products Inc. (NASDAQ:DORM) is the least popular one with only 11 bullish hedge fund positions. Realogy Holdings Corp (NYSE:RLGY) 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. In this regard CAR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
