Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article we will take a closer look at hedge fund sentiment surrounding Revlon Inc (NYSE:REV).
Revlon Inc (NYSE:REV) was in 38 hedge funds’ portfolios at the end of the fourth quarter of 2019. REV investors should be aware of an increase in activity from the world’s largest hedge funds recently. There were 35 hedge funds in our database with REV holdings at the end of the previous quarter. Our calculations also showed that REV 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).
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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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 stocks that are in our short portfolio.
Jamie Zimmerman of Litespeed Management
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. 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. With all of this in mind let’s take a peek at the fresh hedge fund action surrounding Revlon Inc (NYSE:REV).
Hedge fund activity in Revlon Inc (NYSE:REV)
At Q4’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in REV over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of Revlon Inc (NYSE:REV), with a stake worth $46.2 million reported as of the end of September. Trailing Pzena Investment Management was SCW Capital Management, which amassed a stake valued at $43 million. Sunriver Management, Litespeed Management, and Royce & Associates 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 SCW Capital Management allocated the biggest weight to Revlon Inc (NYSE:REV), around 25.59% of its 13F portfolio. Litespeed Management is also relatively very bullish on the stock, dishing out 20.19 percent of its 13F equity portfolio to REV.
Consequently, some big names have jumped into Revlon Inc (NYSE:REV) headfirst. Sunriver Management, managed by Will Cook, assembled the most valuable position in Revlon Inc (NYSE:REV). Sunriver Management had $29.4 million invested in the company at the end of the quarter. Robert B. Gillam’s McKinley Capital Management also made a $4.1 million investment in the stock during the quarter. The following funds were also among the new REV investors: Greg Martinez’s Parkman Healthcare Partners, Renaissance Technologies, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Revlon Inc (NYSE:REV) but similarly valued. We will take a look at Everi Holdings Inc (NYSE:EVRI), Kenon Holdings Ltd. (NYSE:KEN), ProPetro Holding Corp. (NYSE:PUMP), and Star Bulk Carriers Corp. (NASDAQ:SBLK). This group of stocks’ market caps are closest to REV’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EVRI | 30 | 298726 | 7 |
| KEN | 2 | 412 | 1 |
| PUMP | 23 | 222838 | 1 |
| SBLK | 16 | 559337 | 4 |
| Average | 17.75 | 270328 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $270 million. That figure was $292 million in REV’s case. Everi Holdings Inc (NYSE:EVRI) is the most popular stock in this table. On the other hand Kenon Holdings Ltd. (NYSE:KEN) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Revlon Inc (NYSE:REV) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately REV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on REV were disappointed as the stock returned -42.8% during the four months of 2020 (through May 1st) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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.
