We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of RH (NYSE:RH).
RH (NYSE:RH) was in 38 hedge funds’ portfolios at the end of the fourth quarter of 2019. RH investors should pay attention to an increase in enthusiasm from smart money recently. There were 35 hedge funds in our database with RH positions at the end of the previous quarter. Our calculations also showed that RH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Warren Buffett of Berkshire Hathaway
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the recent hedge fund action regarding RH (NYSE:RH).
What does smart money think about RH (NYSE:RH)?
Heading into the first quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RH over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in RH (NYSE:RH) was held by Berkshire Hathaway, which reported holding $364.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $277.4 million position. Other investors bullish on the company included Arrowstreet Capital, Miller Value Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Wallace Capital Management allocated the biggest weight to RH (NYSE:RH), around 4.8% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, dishing out 4.03 percent of its 13F equity portfolio to RH.
Now, specific money managers were breaking ground themselves. Capital Growth Management, managed by Ken Heebner, assembled the biggest position in RH (NYSE:RH). Capital Growth Management had $30.3 million invested in the company at the end of the quarter. Brad Stephens’s Six Columns Capital also initiated a $22.1 million position during the quarter. The other funds with new positions in the stock are Brian Scudieri’s Kehrs Ridge Capital, David Harding’s Winton Capital Management, and Michael Kharitonov and Jon David McAuliffe’s Voleon Capital.
Let’s check out hedge fund activity in other stocks similar to RH (NYSE:RH). These stocks are CVR Energy, Inc. (NYSE:CVI), Intercept Pharmaceuticals Inc (NASDAQ:ICPT), Wintrust Financial Corporation (NASDAQ:WTFC), and PNM Resources, Inc. (NYSE:PNM). This group of stocks’ market valuations resemble RH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CVI | 31 | 3034481 | 3 |
| ICPT | 27 | 485264 | 4 |
| WTFC | 21 | 274629 | 1 |
| PNM | 19 | 367854 | 3 |
| Average | 24.5 | 1040557 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $1041 million. That figure was $1196 million in RH’s case. CVR Energy, Inc. (NYSE:CVI) is the most popular stock in this table. On the other hand PNM Resources, Inc. (NYSE:PNM) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks RH (NYSE:RH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately RH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RH were disappointed as the stock returned -50.3% during the first two and a half months of 2020 (through March 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
