Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about B. Riley Financial, Inc. (NASDAQ:RILY) in this article.
Hedge fund interest in B. Riley Financial, Inc. (NASDAQ:RILY) 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 RILY to other stocks including The First of Long Island Corporation (NASDAQ:FLIC), Heritage Commerce Corp (NASDAQ:HTBK), and Marine Products Corporation (NYSE:MPX) to get a better sense of its popularity. Our calculations also showed that RILY 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.
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 40 percentage points since May 2014 through May 30, 2019 (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.
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 check out the latest hedge fund action surrounding B. Riley Financial, Inc. (NASDAQ:RILY).
What does smart money think about B. Riley Financial, Inc. (NASDAQ:RILY)?
At Q2’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards RILY over the last 16 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Elliott Management held the most valuable stake in B. Riley Financial, Inc. (NASDAQ:RILY), which was worth $48.1 million at the end of the second quarter. On the second spot was Nokomis Capital which amassed $32.9 million worth of shares. Moreover, Royce & Associates, Tudor Investment Corp, and Manatuck Hill Partners were also bullish on B. Riley Financial, Inc. (NASDAQ:RILY), allocating a large percentage of their portfolios to this stock.
Due to the fact that B. Riley Financial, Inc. (NASDAQ:RILY) has witnessed falling interest from hedge fund managers, we can see that there is a sect of funds that elected to cut their entire stakes heading into Q3. It’s worth mentioning that Ken Griffin’s Citadel Investment Group sold off the largest investment of all the hedgies watched by Insider Monkey, valued at about $0.6 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund cut about $0.2 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to B. Riley Financial, Inc. (NASDAQ:RILY). We will take a look at The First of Long Island Corporation (NASDAQ:FLIC), Heritage Commerce Corp (NASDAQ:HTBK), Marine Products Corporation (NYSE:MPX), and A10 Networks Inc (NYSE:ATEN). This group of stocks’ market valuations resemble RILY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FLIC | 9 | 36507 | 0 |
| HTBK | 8 | 29318 | 1 |
| MPX | 5 | 18141 | -1 |
| ATEN | 15 | 102500 | -3 |
| Average | 9.25 | 46617 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $106 million in RILY’s case. A10 Networks Inc (NYSE:ATEN) is the most popular stock in this table. On the other hand Marine Products Corporation (NYSE:MPX) is the least popular one with only 5 bullish hedge fund positions. B. Riley Financial, Inc. (NASDAQ:RILY) is not the most popular stock in this group but hedge fund interest is still above average. 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 RILY as the stock returned 16.1% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
