Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 RBC Bearings Incorporated (NASDAQ:ROLL).
Is RBC Bearings Incorporated (NASDAQ:ROLL) a buy, sell, or hold? Prominent investors are selling. The number of bullish hedge fund bets went down by 5 lately. Our calculations also showed that ROLL isn’t among the 30 most popular stocks among hedge funds (view the video below). ROLL was in 6 hedge funds’ portfolios at the end of the second quarter of 2019. There were 11 hedge funds in our database with ROLL positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the key hedge fund action regarding RBC Bearings Incorporated (NASDAQ:ROLL).
How have hedgies been trading RBC Bearings Incorporated (NASDAQ:ROLL)?
At Q2’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -45% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in ROLL a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in RBC Bearings Incorporated (NASDAQ:ROLL), which was worth $51.2 million at the end of the second quarter. On the second spot was SG Capital Management which amassed $3.8 million worth of shares. Moreover, GLG Partners, PEAK6 Capital Management, and Millennium Management were also bullish on RBC Bearings Incorporated (NASDAQ:ROLL), allocating a large percentage of their portfolios to this stock.
Because RBC Bearings Incorporated (NASDAQ:ROLL) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few money managers that slashed their entire stakes last quarter. Interestingly, Ken Griffin’s Citadel Investment Group said goodbye to the largest position of the “upper crust” of funds followed by Insider Monkey, comprising close to $2.6 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dropped its stock, about $0.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 5 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to RBC Bearings Incorporated (NASDAQ:ROLL). We will take a look at Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), Ryman Hospitality Properties, Inc. (NYSE:RHP), Healthcare Realty Trust Inc (NYSE:HR), and Trex Company, Inc. (NYSE:TREX). All of these stocks’ market caps are similar to ROLL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CBRL | 22 | 201300 | -1 |
| RHP | 21 | 407514 | 3 |
| HR | 9 | 47376 | -5 |
| TREX | 19 | 185384 | -1 |
| Average | 17.75 | 210394 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $60 million in ROLL’s case. Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is the most popular stock in this table. On the other hand Healthcare Realty Trust Inc (NYSE:HR) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks RBC Bearings Incorporated (NASDAQ:ROLL) is even less popular than HR. Hedge funds dodged a bullet by taking a bearish stance towards ROLL. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ROLL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ROLL investors were disappointed as the stock returned -0.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
