It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like United Rentals, Inc. (NYSE:URI).
United Rentals, Inc. (NYSE:URI) investors should pay attention to an increase in enthusiasm from smart money recently. Our calculations also showed that URI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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.
Ken Griffin of Citadel Investment Group
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. Now let’s take a gander at the fresh hedge fund action regarding United Rentals, Inc. (NYSE:URI).
How have hedgies been trading United Rentals, Inc. (NYSE:URI)?
Heading into the fourth quarter of 2019, a total of 54 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards URI over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Andrew Wellington and Jeff Keswin’s Lyrical Asset Management has the number one position in United Rentals, Inc. (NYSE:URI), worth close to $259.1 million, comprising 3.9% of its total 13F portfolio. The second largest stake is held by Patrick Degorce of Theleme Partners, with a $206.5 million position; the fund has 9.6% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions contain Ken Griffin’s Citadel Investment Group, Larry Robbins’s Glenview Capital and Andreas Halvorsen’s Viking Global. In terms of the portfolio weights assigned to each position Red Cedar Management allocated the biggest weight to United Rentals, Inc. (NYSE:URI), around 11.39% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, earmarking 10.26 percent of its 13F equity portfolio to URI.
As one would reasonably expect, key money managers have been driving this bullishness. Viking Global, managed by Andreas Halvorsen, established the largest position in United Rentals, Inc. (NYSE:URI). Viking Global had $51 million invested in the company at the end of the quarter. Anand Parekh’s Alyeska Investment Group also initiated a $32.3 million position during the quarter. The other funds with brand new URI positions are William Harnisch’s Peconic Partners, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Gregg Moskowitz’s Interval Partners.
Let’s go over hedge fund activity in other stocks similar to United Rentals, Inc. (NYSE:URI). These stocks are Liberty Media Corporation (NASDAQ:FWONK), Avery Dennison Corporation (NYSE:AVY), Vereit Inc (NYSE:VER), and Advanced Semiconductor Engineering (NYSE:ASX). This group of stocks’ market caps are similar to URI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FWONK | 30 | 1915502 | -2 |
| AVY | 22 | 125790 | 1 |
| VER | 34 | 613230 | 11 |
| ASX | 8 | 192875 | 0 |
| Average | 23.5 | 711849 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $712 million. That figure was $1124 million in URI’s case. Vereit Inc (NYSE:VER) is the most popular stock in this table. On the other hand Advanced Semiconductor Engineering (NYSE:ASX) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks United Rentals, Inc. (NYSE:URI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on URI as the stock returned 64.8% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
