The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Rambus Inc. (NASDAQ:RMBS) and find out how it is affected by hedge funds’ moves.
Rambus Inc. (NASDAQ:RMBS) has seen an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that RMBS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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 E. Shaw of D.E. Shaw
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the key hedge fund action regarding Rambus Inc. (NASDAQ:RMBS).
How are hedge funds trading Rambus Inc. (NASDAQ:RMBS)?
At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RMBS over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Rambus Inc. (NASDAQ:RMBS), which was worth $57.8 million at the end of the third quarter. On the second spot was D E Shaw which amassed $33.1 million worth of shares. Lynrock Lake, Millennium Management, and Two Sigma Advisors 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 Lynrock Lake allocated the biggest weight to Rambus Inc. (NASDAQ:RMBS), around 2.97% of its 13F portfolio. Wexford Capital is also relatively very bullish on the stock, earmarking 0.68 percent of its 13F equity portfolio to RMBS.
As aggregate interest increased, some big names were leading the bulls’ herd. Wexford Capital, managed by Charles Davidson and Joseph Jacobs, initiated the largest position in Rambus Inc. (NASDAQ:RMBS). Wexford Capital had $4.9 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $1.1 million position during the quarter. The following funds were also among the new RMBS investors: Cynthia Paul’s Lynrock Lake, Thomas Bailard’s Bailard Inc, and Donald Sussman’s Paloma Partners.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Rambus Inc. (NASDAQ:RMBS) but similarly valued. We will take a look at Tri Continental Corporation (NYSE:TY), Rush Enterprises, Inc. (NASDAQ:RUSHB), trivago N.V. (NASDAQ:TRVG), and Atrion Corporation (NASDAQ:ATRI). This group of stocks’ market values resemble RMBS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TY | 1 | 1233 | 0 |
| RUSHB | 3 | 36150 | 1 |
| TRVG | 11 | 144580 | 2 |
| ATRI | 16 | 96778 | 5 |
| Average | 7.75 | 69685 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $153 million in RMBS’s case. Atrion Corporation (NASDAQ:ATRI) is the most popular stock in this table. On the other hand Tri Continental Corporation (NYSE:TY) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Rambus Inc. (NASDAQ:RMBS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately RMBS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RMBS were disappointed as the stock returned -0.6% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
