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 The RealReal, Inc. (NASDAQ:REAL) and determine whether hedge funds skillfully traded this stock.
The RealReal, Inc. (NASDAQ:REAL) has experienced an increase in enthusiasm from smart money of late. The RealReal, Inc. (NASDAQ:REAL) was in 19 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. Our calculations also showed that REAL isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Michael Gelband of ExodusPoint Capital
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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let’s analyze the recent hedge fund action encompassing The RealReal, Inc. (NASDAQ:REAL).
Hedge fund activity in The RealReal, Inc. (NASDAQ:REAL)
At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in REAL 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.
More specifically, Woodson Capital Management was the largest shareholder of The RealReal, Inc. (NASDAQ:REAL), with a stake worth $73.5 million reported as of the end of September. Trailing Woodson Capital Management was Greenspring Associates, which amassed a stake valued at $52.1 million. Broad Peak Investment Holdings, Masters Capital Management, and Millennium 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 Greenspring Associates allocated the biggest weight to The RealReal, Inc. (NASDAQ:REAL), around 31.96% of its 13F portfolio. Portsea Asset Management is also relatively very bullish on the stock, dishing out 7.7 percent of its 13F equity portfolio to REAL.
As aggregate interest increased, some big names have been driving this bullishness. Masters Capital Management, managed by Mike Masters, established the most valuable position in The RealReal, Inc. (NASDAQ:REAL). Masters Capital Management had $11.5 million invested in the company at the end of the quarter. Cyrus de Weck’s Portsea Asset Management also made a $9.4 million investment in the stock during the quarter. The following funds were also among the new REAL investors: Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, Michael Gelband’s ExodusPoint Capital, and Greg Eisner’s Engineers Gate Manager.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The RealReal, Inc. (NASDAQ:REAL) but similarly valued. We will take a look at Calavo Growers, Inc. (NASDAQ:CVGW), SFL Corporation Ltd. (NYSE:SFL), Health Catalyst, Inc (NASDAQ:HCAT), NanoString Technologies Inc (NASDAQ:NSTG), Infinera Corp. (NASDAQ:INFN), Sixth Street Specialty Lending Inc (NYSE:TSLX), and DiamondRock Hospitality Company (NYSE:DRH). All of these stocks’ market caps resemble REAL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CVGW | 14 | 78053 | 3 |
| SFL | 15 | 41362 | 1 |
| HCAT | 13 | 116981 | -1 |
| NSTG | 17 | 123754 | -1 |
| INFN | 21 | 271990 | 7 |
| TSLX | 10 | 48331 | -3 |
| DRH | 16 | 103371 | 0 |
| Average | 15.1 | 111977 | 0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $201 million in REAL’s case. Infinera Corp. (NASDAQ:INFN) is the most popular stock in this table. On the other hand Sixth Street Specialty Lending Inc (NYSE:TSLX) is the least popular one with only 10 bullish hedge fund positions. The RealReal, Inc. (NASDAQ:REAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for REAL is 67.2. 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 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on REAL as the stock returned 13.1% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
