Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 24.4% compared to 20.4%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Hedge fund interest in Retail Value Inc. (NYSE:RVI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare RVI to other stocks including Cellectis SA (NASDAQ:CLLS), Model N Inc (NYSE:MODN), and Preferred Apartment Communities Inc. (NYSE:APTS) to get a better sense of its popularity. Our calculations also showed that RVI isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the recent hedge fund action encompassing Retail Value Inc. (NYSE:RVI).
How are hedge funds trading Retail Value Inc. (NYSE:RVI)?
At Q2’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RVI over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Indaba Capital Management was the largest shareholder of Retail Value Inc. (NYSE:RVI), with a stake worth $31.6 million reported as of the end of March. Trailing Indaba Capital Management was Hawk Ridge Management, which amassed a stake valued at $13 million. Newtyn Management, Arrowstreet Capital, and Rubric Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Retail Value Inc. (NYSE:RVI) has faced declining sentiment from hedge fund managers, it’s easy to see that there were a few hedge funds who sold off their full holdings last quarter. Interestingly, Christian Leone’s Luxor Capital Group cut the biggest stake of all the hedgies followed by Insider Monkey, comprising an estimated $93.3 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund sold off about $12 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Retail Value Inc. (NYSE:RVI) but similarly valued. These stocks are Cellectis SA (NASDAQ:CLLS), Model N Inc (NYSE:MODN), Preferred Apartment Communities Inc. (NYSE:APTS), and National Presto Industries Inc. (NYSE:NPK). This group of stocks’ market values match RVI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CLLS | 11 | 31400 | 3 |
| MODN | 12 | 112063 | -4 |
| APTS | 7 | 7218 | 0 |
| NPK | 12 | 71041 | -1 |
| Average | 10.5 | 55431 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $79 million in RVI’s case. Model N Inc (NYSE:MODN) is the most popular stock in this table. On the other hand Preferred Apartment Communities Inc. (NYSE:APTS) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Retail Value Inc. (NYSE:RVI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on RVI as the stock returned 6.4% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
