Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards The RealReal, Inc. (NASDAQ:REAL) to find out whether it was one of their high conviction long-term ideas.
The RealReal, Inc. (NASDAQ:REAL) has seen a decrease in hedge fund interest recently. REAL was in 20 hedge funds’ portfolios at the end of the third quarter of 2019. There were 33 hedge funds in our database with REAL positions at the end of the previous quarter. Our calculations also showed that REAL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Glen Kacher of Light Street Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a look at the new hedge fund action surrounding The RealReal, Inc. (NASDAQ:REAL).
How have hedgies been trading The RealReal, Inc. (NASDAQ:REAL)?
Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -39% from the second quarter of 2019. On the other hand, there were a total of 0 hedge funds with a bullish position in REAL a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Bloom Tree Partners held the most valuable stake in The RealReal, Inc. (NASDAQ:REAL), which was worth $25 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $10 million worth of shares. Broad Bay Capital, Millennium Management, and Light Street Capital 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 Berylson Capital Partners allocated the biggest weight to The RealReal, Inc. (NASDAQ:REAL), around 7.48% of its 13F portfolio. Bloom Tree Partners is also relatively very bullish on the stock, dishing out 2.38 percent of its 13F equity portfolio to REAL.
Since The RealReal, Inc. (NASDAQ:REAL) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of hedge funds who were dropping their full holdings in the third quarter. Interestingly, Josh Resnick’s Jericho Capital Asset Management said goodbye to the largest stake of all the hedgies followed by Insider Monkey, comprising close to $9.7 million in stock, and Peter S. Park’s Park West Asset Management was right behind this move, as the fund said goodbye to about $5.8 million worth. These transactions are important to note, as total hedge fund interest fell by 13 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to The RealReal, Inc. (NASDAQ:REAL). These stocks are Agios Pharmaceuticals Inc (NASDAQ:AGIO), Mednax Inc. (NYSE:MD), BGC Partners, Inc. (NASDAQ:BGCP), and Scientific Games Corp (NASDAQ:SGMS). This group of stocks’ market valuations resemble REAL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGIO | 17 | 103178 | -1 |
| MD | 19 | 265778 | 1 |
| BGCP | 21 | 270227 | -4 |
| SGMS | 25 | 575551 | -2 |
| Average | 20.5 | 303684 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $304 million. That figure was $83 million in REAL’s case. Scientific Games Corp (NASDAQ:SGMS) is the most popular stock in this table. On the other hand Agios Pharmaceuticals Inc (NASDAQ:AGIO) is the least popular one with only 17 bullish hedge fund positions. The RealReal, Inc. (NASDAQ:REAL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately REAL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); REAL investors were disappointed as the stock returned -23.1% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
