Hedge Funds Are Still Piling Into RH (RH)

In this article we will check out the progression of hedge fund sentiment towards RH (NYSE:RH) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is RH (NYSE:RH) worth your attention right now? Hedge funds were in an optimistic mood. The number of long hedge fund bets went up by 4 lately. RH (NYSE:RH) was in 54 hedge funds’ portfolios at the end of June. The all time high for this statistic is 50. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that RH isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 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 S&P 500 ETFs by 79 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 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.

Daniel Sundheim of D1 Capital Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 homepage. Now let’s view the key hedge fund action encompassing RH (NYSE:RH).

Do Hedge Funds Think RH Is A Good Stock To Buy Now?

At second quarter’s end, a total of 54 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in RH over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Berkshire Hathaway, managed by Warren Buffett, holds the most valuable position in RH (NYSE:RH). Berkshire Hathaway has a $1.2167 billion position in the stock, comprising 0.4% of its 13F portfolio. Sitting at the No. 2 spot is Lone Pine Capital, which holds a $693.1 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish comprise Daniel Sundheim’s D1 Capital Partners, Ross Turner’s Pelham Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Pelham Capital allocated the biggest weight to RH (NYSE:RH), around 13% of its 13F portfolio. Newbrook Capital Advisors is also relatively very bullish on the stock, setting aside 5.61 percent of its 13F equity portfolio to RH.

As industrywide interest jumped, specific money managers were breaking ground themselves. Lone Pine Capital, assembled the most outsized position in RH (NYSE:RH). Lone Pine Capital had $693.1 million invested in the company at the end of the quarter. Robert Boucai’s Newbrook Capital Advisors also made a $83.1 million investment in the stock during the quarter. The following funds were also among the new RH investors: Robert Joseph Caruso’s Select Equity Group, Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, and Elise Di Vincenzo Crumbine’s Stormborn Capital Management.

Let’s now review hedge fund activity in other stocks similar to RH (NYSE:RH). We will take a look at CenterPoint Energy, Inc. (NYSE:CNP), Signature Bank (NASDAQ:SBNY), WestRock Company (NYSE:WRK), GoodRx Holdings, Inc. (NASDAQ:GDRX), Wynn Resorts, Limited (NASDAQ:WYNN), ABIOMED, Inc. (NASDAQ:ABMD), and Oak Street Health, Inc. (NYSE:OSH). This group of stocks’ market values are similar to RH’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $637 million. That figure was $4331 million in RH’s case. Signature Bank (NASDAQ:SBNY) is the most popular stock in this table. On the other hand CenterPoint Energy, Inc. (NYSE:CNP) is the least popular one with only 20 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 89. 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 22.9% in 2021 through October 1st and still beat the market by 5.6 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 -4.8% since the end of the second quarter (through 10/1) 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 most of these stocks already outperformed the market since 2019.

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