How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Renren Inc (NYSE:RENN).
Is RENN a good stock to buy? The smart money was becoming more confident. The number of long hedge fund positions moved up by 2 in recent months. Renren Inc (NYSE:RENN) was in 3 hedge funds' portfolios at the end of March. The all time high for this statistic is 7. Our calculations also showed that RENN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 S&P 500 ETFs by 115 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.
Ken Griffin CITADEL INVESTMENT GROUP
Ken Griffin of Citadel Investment Group
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stockfor $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to review the latest hedge fund action surrounding Renren Inc (NYSE:RENN).
Do Hedge Funds Think RENN Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 200% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RENN over the last 23 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in Renren Inc (NYSE:RENN) was held by AWH Capital, which reported holding $0.7 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $0.3 million position. The only other hedge fund that is bullish on the company was Citadel Investment Group.
With a general bullishness amongst the heavyweights, some big names have jumped into Renren Inc (NYSE:RENN) headfirst. AWH Capital, managed by Austin Wiggins Hopper, created the most valuable position in Renren Inc (NYSE:RENN). AWH Capital had $0.7 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $0.1 million position during the quarter.
Let's now take a look at hedge fund activity in other stocks similar to Renren Inc (NYSE:RENN). We will take a look at Information Services Group, Inc. (NASDAQ:III), ADMA Biologics Inc (NASDAQ:ADMA), O2Micro International Limited (NASDAQ:OIIM), SGOCO Group Ltd (NASDAQ:SGOC), Western New England Bancorp, Inc. (NASDAQ:WNEB), Capital Product Partners L.P. (NASDAQ:CPLP), and Weyco Group, Inc. (NASDAQ:WEYS). This group of stocks' market caps are similar to RENN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position III,7,38598,0 ADMA,9,34064,-5 OIIM,5,29382,0 SGOC,3,232,2 WNEB,5,21557,2 CPLP,5,2521,3 WEYS,2,1513,1 Average,5.1,18267,0.4 [/table]
As you can see these stocks had an average of 5.1 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $1 million in RENN's case. ADMA Biologics Inc (NASDAQ:ADMA) is the most popular stock in this table. On the other hand Weyco Group, Inc. (NASDAQ:WEYS) is the least popular one with only 2 bullish hedge fund positions. Renren Inc (NYSE:RENN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RENN is 27. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. A small number of hedge funds were also right about betting on RENN as the stock returned 24.8% since the end of the first quarter (through 6/11) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
