At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Renewable Energy Group Inc (NASDAQ:REGI) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Renewable Energy Group Inc (NASDAQ:REGI) investors should be aware of an increase in enthusiasm from smart money in recent months. Renewable Energy Group Inc (NASDAQ:REGI) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 21. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 16 hedge funds in our database with REGI positions at the end of the first quarter. Our calculations also showed that REGI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.
David Harding of Winton Capital Management
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 precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let’s analyze the key hedge fund action encompassing Renewable Energy Group Inc (NASDAQ:REGI).
How have hedgies been trading Renewable Energy Group Inc (NASDAQ:REGI)?
At Q2’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 31% from the previous quarter. The graph below displays the number of hedge funds with bullish position in REGI over the last 20 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.
Among these funds, Parsifal Capital Management held the most valuable stake in Renewable Energy Group Inc (NASDAQ:REGI), which was worth $21.6 million at the end of the third quarter. On the second spot was Arosa Capital Management which amassed $16.1 million worth of shares. Arrowstreet Capital, Lansdowne Partners, and Citadel Investment Group 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 Parsifal Capital Management allocated the biggest weight to Renewable Energy Group Inc (NASDAQ:REGI), around 6.38% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, dishing out 3.07 percent of its 13F equity portfolio to REGI.
Now, some big names were breaking ground themselves. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, initiated the most valuable position in Renewable Energy Group Inc (NASDAQ:REGI). LMR Partners had $2.5 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $1.1 million position during the quarter. The following funds were also among the new REGI investors: David Harding’s Winton Capital Management, Benjamin A. Smith’s Laurion Capital Management, and Cliff Asness’s AQR Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Renewable Energy Group Inc (NASDAQ:REGI) but similarly valued. These stocks are Tompkins Financial Corporation (NYSE:TMP), Dynavax Technologies Corporation (NASDAQ:DVAX), Re/Max Holdings Inc (NYSE:RMAX), Crestwood Equity Partners LP (NYSE:CEQP), Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT), Lantheus Holdings Inc (NASDAQ:LNTH), and ePlus Inc. (NASDAQ:PLUS). All of these stocks’ market caps match REGI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TMP | 4 | 11436 | 0 |
| DVAX | 17 | 122509 | 9 |
| RMAX | 7 | 42453 | 1 |
| CEQP | 4 | 1435 | 0 |
| ARCT | 21 | 134484 | 10 |
| LNTH | 20 | 141235 | 0 |
| PLUS | 16 | 43799 | 3 |
| Average | 12.7 | 71050 | 3.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.7 hedge funds with bullish positions and the average amount invested in these stocks was $71 million. That figure was $83 million in REGI’s case. Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) is the most popular stock in this table. On the other hand Tompkins Financial Corporation (NYSE:TMP) is the least popular one with only 4 bullish hedge fund positions. Renewable Energy Group Inc (NASDAQ:REGI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for REGI is 90. 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 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on REGI as the stock returned 115.6% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Renewable Energy Group Inc. (NASDAQ:REGI)
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Disclosure: None. This article was originally published at Insider Monkey.
