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 Rapid7 Inc (NASDAQ:RPD).
Rapid7 Inc (NASDAQ:RPD) was in 24 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 28. RPD has seen an increase in enthusiasm from smart money recently. There were 17 hedge funds in our database with RPD holdings at the end of June. Our calculations also showed that RPD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
John Overdeck of Two Sigma Advisors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. Now we’re going to take a look at the latest hedge fund action regarding Rapid7 Inc (NASDAQ:RPD).
Do Hedge Funds Think RPD Is A Good Stock To Buy Now?
At the end of September, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 41% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in RPD over the last 25 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Rapid7 Inc (NASDAQ:RPD) was held by Washington Harbour Partners, which reported holding $47.2 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $22.8 million position. Other investors bullish on the company included Osterweis Capital Management, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Washington Harbour Partners allocated the biggest weight to Rapid7 Inc (NASDAQ:RPD), around 5.58% of its 13F portfolio. Osterweis Capital Management is also relatively very bullish on the stock, designating 0.86 percent of its 13F equity portfolio to RPD.
Now, key hedge funds have jumped into Rapid7 Inc (NASDAQ:RPD) headfirst. Citadel Investment Group, managed by Ken Griffin, initiated the largest position in Rapid7 Inc (NASDAQ:RPD). Citadel Investment Group had $12.7 million invested in the company at the end of the quarter. Michael Rockefeller and KarláKroeker’s Woodline Partners also initiated a $8 million position during the quarter. The other funds with brand new RPD positions are Paul Tudor Jones’s Tudor Investment Corp, Renaissance Technologies, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks similar to Rapid7 Inc (NASDAQ:RPD). These stocks are Houlihan Lokey Inc (NYSE:HLI), II-VI, Inc. (NASDAQ:IIVI), Cyberark Software Ltd (NASDAQ:CYBR), Silicon Laboratories (NASDAQ:SLAB), Saia Inc (NASDAQ:SAIA), Popular Inc (NASDAQ:BPOP), and Royal Gold, Inc (NASDAQ:RGLD). All of these stocks’ market caps are similar to RPD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HLI | 18 | 183140 | 0 |
| IIVI | 24 | 250417 | -5 |
| CYBR | 20 | 414967 | -7 |
| SLAB | 18 | 207783 | 3 |
| SAIA | 27 | 539493 | 5 |
| BPOP | 33 | 772508 | 0 |
| RGLD | 21 | 168093 | 1 |
| Average | 23 | 362343 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $362 million. That figure was $167 million in RPD’s case. Popular Inc (NASDAQ:BPOP) is the most popular stock in this table. On the other hand Houlihan Lokey Inc (NYSE:HLI) is the least popular one with only 18 bullish hedge fund positions. Rapid7 Inc (NASDAQ:RPD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RPD is 55.7. 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 31.1% in 2021 through December 9th and beat the market again by 5.1 percentage points. Unfortunately RPD wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on RPD were disappointed as the stock returned 3.1% since the end of September (through 12/9) 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.
Follow Rapid7 Inc. (NASDAQ:RPD)
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Disclosure: None. This article was originally published at Insider Monkey.
