Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Re/Max Holdings Inc (NYSE:RMAX).
Is Re/Max Holdings Inc (NYSE:RMAX) a splendid stock to buy now? Hedge funds are selling. The number of bullish hedge fund positions shrunk by 1 lately. Our calculations also showed that RMAX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). RMAX was in 9 hedge funds’ portfolios at the end of the third quarter of 2019. There were 10 hedge funds in our database with RMAX holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s view the new hedge fund action regarding Re/Max Holdings Inc (NYSE:RMAX).
Hedge fund activity in Re/Max Holdings Inc (NYSE:RMAX)
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RMAX over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Re/Max Holdings Inc (NYSE:RMAX), with a stake worth $40.3 million reported as of the end of September. Trailing Renaissance Technologies was Okumus Fund Management, which amassed a stake valued at $25 million. Millennium Management, Marshall Wace, and Arrowstreet 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 Okumus Fund Management allocated the biggest weight to Re/Max Holdings Inc (NYSE:RMAX), around 6.8% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, designating 0.06 percent of its 13F equity portfolio to RMAX.
Because Re/Max Holdings Inc (NYSE:RMAX) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedge funds that decided to sell off their positions entirely by the end of the third quarter. At the top of the heap, Frank Slattery’s Symmetry Peak Management cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, totaling close to $0.5 million in stock, and Mike Vranos’s Ellington was right behind this move, as the fund dumped about $0.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Re/Max Holdings Inc (NYSE:RMAX). We will take a look at Livent Corporation (NYSE:LTHM), National Western Life Insurance Company (NASDAQ:NWLI), Zymeworks Inc. (NYSE:ZYME), and Sculptor Capital Management, Inc. (NYSE:SCU). This group of stocks’ market caps match RMAX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LTHM | 20 | 123690 | -1 |
| NWLI | 9 | 16662 | 1 |
| ZYME | 16 | 347944 | 2 |
| SCU | 11 | 65813 | 1 |
| Average | 14 | 138527 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $92 million in RMAX’s case. Livent Corporation (NYSE:LTHM) is the most popular stock in this table. On the other hand National Western Life Insurance Company (NASDAQ:NWLI) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Re/Max Holdings Inc (NYSE:RMAX) is even less popular than NWLI. Hedge funds clearly dropped the ball on RMAX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on RMAX as the stock returned 19.9% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
