Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards The RMR Group Inc. (NASDAQ:RMR).
Is RMR a good stock to buy now? The RMR Group Inc. (NASDAQ:RMR) was in 13 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. RMR investors should pay attention to a decrease in hedge fund interest recently. There were 14 hedge funds in our database with RMR positions at the end of the second quarter. Our calculations also showed that RMR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Brown Hawk Ridge Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Keeping this in mind we're going to view the key hedge fund action encompassing The RMR Group Inc. (NASDAQ:RMR).
Do Hedge Funds Think RMR Is A Good Stock To Buy Now?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RMR over the last 21 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Is RMR A Good Stock To Buy?
According to Insider Monkey's hedge fund database, Hawk Ridge Management, managed by David Brown, holds the biggest position in The RMR Group Inc. (NASDAQ:RMR). Hawk Ridge Management has a $23.7 million position in the stock, comprising 2% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, holding a $17.6 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish consist of Chuck Royce's Royce & Associates, Arnaud Ajdler's Engine Capital and Charles Fitzgerald's V3 Capital. In terms of the portfolio weights assigned to each position Engine Capital allocated the biggest weight to The RMR Group Inc. (NASDAQ:RMR), around 3.7% of its 13F portfolio. Hawk Ridge Management is also relatively very bullish on the stock, dishing out 2.02 percent of its 13F equity portfolio to RMR.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Winton Capital Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified RMR as a viable investment and initiated a position in the stock.
Let's check out hedge fund activity in other stocks similar to The RMR Group Inc. (NASDAQ:RMR). These stocks are Ladder Capital Corp (NYSE:LADR), Forestar Group Inc. (NYSE:FOR), Arcos Dorados Holding Inc (NYSE:ARCO), NextGen Healthcare, Inc. (NASDAQ:NXGN), Tompkins Financial Corporation (NYSE:TMP), Kaiser Aluminum Corp. (NASDAQ:KALU), and Krystal Biotech, Inc. (NASDAQ:KRYS). All of these stocks' market caps resemble RMR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LADR,14,25044,0 FOR,11,102043,-3 ARCO,12,39048,-3 NXGN,16,28532,-1 TMP,7,9977,3 KALU,16,55745,0 KRYS,10,196697,-3 Average,12.3,65298,-1 [/table]
As you can see these stocks had an average of 12.3 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $81 million in RMR's case. NextGen Healthcare, Inc. (NASDAQ:NXGN) is the most popular stock in this table. On the other hand Tompkins Financial Corporation (NYSE:TMP) is the least popular one with only 7 bullish hedge fund positions. The RMR Group Inc. (NASDAQ:RMR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RMR is 55.1. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on RMR as the stock returned 41.9% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
