While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Rent-A-Center Inc (NASDAQ:RCII).
Rent-A-Center Inc (NASDAQ:RCII) was in 26 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 29. RCII investors should pay attention to an increase in hedge fund sentiment lately. There were 22 hedge funds in our database with RCII positions at the end of the fourth quarter. Our calculations also showed that RCII isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Glenn Welling of Engaged Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. 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. Keeping this in mind let’s analyze the fresh hedge fund action regarding Rent-A-Center Inc (NASDAQ:RCII).
Do Hedge Funds Think RCII Is A Good Stock To Buy Now?
At Q1’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in RCII a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Rent-A-Center Inc (NASDAQ:RCII) was held by Engaged Capital, which reported holding $168.3 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $126.4 million position. Other investors bullish on the company included Arrowstreet Capital, Royce & Associates, and Steamboat Capital Partners. In terms of the portfolio weights assigned to each position Engaged Capital allocated the biggest weight to Rent-A-Center Inc (NASDAQ:RCII), around 12.15% of its 13F portfolio. Steamboat Capital Partners is also relatively very bullish on the stock, earmarking 7.34 percent of its 13F equity portfolio to RCII.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Steamboat Capital Partners, managed by Parsa Kiai, established the largest position in Rent-A-Center Inc (NASDAQ:RCII). Steamboat Capital Partners had $24.9 million invested in the company at the end of the quarter. Sheetal Sharma’s Collaborative Holdings Management also made a $9.1 million investment in the stock during the quarter. The other funds with brand new RCII positions are Brad Stephens’s Six Columns Capital, Brad Stephens’s Six Columns Capital, and Jinghua Yan’s TwinBeech Capital.
Let’s also examine hedge fund activity in other stocks similar to Rent-A-Center Inc (NASDAQ:RCII). These stocks are Southwestern Energy Company (NYSE:SWN), Arcosa, Inc. (NYSE:ACA), Relay Therapeutics, Inc. (NASDAQ:RLAY), Commscope Holding Company Inc (NASDAQ:COMM), Independent Bank Group Inc (NASDAQ:IBTX), Freedom Holding Corp. (NASDAQ:FRHC), and Viant Technology Inc. (NASDAQ:DSP). This group of stocks’ market valuations are similar to RCII’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SWN | 22 | 207392 | 1 |
| ACA | 17 | 220346 | 0 |
| RLAY | 20 | 636649 | 3 |
| COMM | 32 | 757950 | -3 |
| IBTX | 9 | 74670 | -5 |
| FRHC | 12 | 55186 | 4 |
| DSP | 14 | 70607 | 14 |
| Average | 18 | 288971 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $289 million. That figure was $488 million in RCII’s case. Commscope Holding Company Inc (NASDAQ:COMM) is the most popular stock in this table. On the other hand Independent Bank Group Inc (NASDAQ:IBTX) is the least popular one with only 9 bullish hedge fund positions. Rent-A-Center Inc (NASDAQ:RCII) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RCII is 72.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 24% in 2021 through July 9th and beat the market again by 6.7 percentage points. Unfortunately RCII wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on RCII were disappointed as the stock returned -6.7% since the end of March (through 7/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
