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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Rent-A-Center Inc (NASDAQ:RCII).
Is Rent-A-Center Inc (NASDAQ:RCII) a buy here? Money managers are getting less optimistic. The number of long hedge fund positions were cut by 6 recently. Our calculations also showed that RCII isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Glenn Welling of Engaged Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the key hedge fund action encompassing Rent-A-Center Inc (NASDAQ:RCII).
How are hedge funds trading Rent-A-Center Inc (NASDAQ:RCII)?
Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RCII over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Engaged Capital held the most valuable stake in Rent-A-Center Inc (NASDAQ:RCII), which was worth $75.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $59.2 million worth of shares. Cloverdale Capital Management, Royce & Associates, and D E Shaw 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 Cloverdale Capital Management allocated the biggest weight to Rent-A-Center Inc (NASDAQ:RCII), around 12.58% of its 13F portfolio. Engaged Capital is also relatively very bullish on the stock, setting aside 9.89 percent of its 13F equity portfolio to RCII.
Judging by the fact that Rent-A-Center Inc (NASDAQ:RCII) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers who sold off their full holdings last quarter. At the top of the heap, Ken Grossman and Glen Schneider’s SG Capital Management said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $16.5 million in stock. Lee Ainslie’s fund, Maverick Capital, also dumped its stock, about $4.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 6 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Rent-A-Center Inc (NASDAQ:RCII). These stocks are Coeur Mining, Inc. (NYSE:CDE), Adverum Biotechnologies, Inc. (NASDAQ:ADVM), American Woodmark Corporation (NASDAQ:AMWD), and Chase Corporation (NYSE:CCF). This group of stocks’ market values are similar to RCII’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CDE | 14 | 36482 | -1 |
| ADVM | 25 | 352608 | 4 |
| AMWD | 11 | 14493 | -6 |
| CCF | 10 | 67591 | 1 |
| Average | 15 | 117794 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $201 million in RCII’s case. Adverum Biotechnologies, Inc. (NASDAQ:ADVM) is the most popular stock in this table. On the other hand Chase Corporation (NYSE:CCF) is the least popular one with only 10 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 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 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on RCII as the stock returned 85.4% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
