“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Resources Connection, Inc. (NASDAQ:RECN) and see how it was affected.
Resources Connection, Inc. (NASDAQ:RECN) has seen an increase in hedge fund sentiment in recent months. RECN was in 17 hedge funds’ portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with RECN holdings at the end of the previous quarter. Our calculations also showed that RECN 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.
According to most market participants, hedge funds are viewed as worthless, outdated investment vehicles of yesteryear. While there are over 8000 funds with their doors open today, We hone in on the moguls of this group, about 750 funds. These money managers watch over the majority of the smart money’s total asset base, and by monitoring their best equity investments, Insider Monkey has identified numerous investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a glance at the fresh hedge fund action encompassing Resources Connection, Inc. (NASDAQ:RECN).
What does smart money think about Resources Connection, Inc. (NASDAQ:RECN)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in RECN a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Resources Connection, Inc. (NASDAQ:RECN) was held by Royce & Associates, which reported holding $34.7 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $5.5 million position. Other investors bullish on the company included Renaissance Technologies, Fisher Asset Management, and Marshall Wace. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Resources Connection, Inc. (NASDAQ:RECN), around 0.32% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 0.2 percent of its 13F equity portfolio to RECN.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Winton Capital Management, managed by David Harding, created the most outsized position in Resources Connection, Inc. (NASDAQ:RECN). Winton Capital Management had $1 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $0.2 million position during the quarter. The other funds with new positions in the stock are Mike Vranos’s Ellington, Roger Ibbotson’s Zebra Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s also examine hedge fund activity in other stocks similar to Resources Connection, Inc. (NASDAQ:RECN). We will take a look at IGM Biosciences, Inc. (NASDAQ:IGMS), Gamco Investors Inc. (NYSE:GBL), Green Brick Partners Inc (NASDAQ:GRBK), and Oasis Midstream Partners LP (NYSE:OMP). This group of stocks’ market values resemble RECN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IGMS | 11 | 151862 | 11 |
| GBL | 10 | 11055 | 0 |
| GRBK | 16 | 318379 | 1 |
| OMP | 3 | 7122 | -2 |
| Average | 10 | 122105 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $54 million in RECN’s case. Green Brick Partners Inc (NASDAQ:GRBK) is the most popular stock in this table. On the other hand Oasis Midstream Partners LP (NYSE:OMP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Resources Connection, Inc. (NASDAQ:RECN) 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 RECN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RECN were disappointed as the stock returned -8.2% 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.
