Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Rollins, Inc. (NYSE:ROL) has seen an increase in support from the world’s most elite money managers recently. ROL was in 25 hedge funds’ portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with ROL positions at the end of the previous quarter. Our calculations also showed that ROL 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In the eyes of most stock holders, hedge funds are seen as underperforming, outdated investment vehicles of the past. While there are over 8000 funds in operation at the moment, Our researchers choose to focus on the elite of this club, around 750 funds. These investment experts shepherd bulk of the smart money’s total capital, and by keeping an eye on their highest performing stock picks, Insider Monkey has deciphered many investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy surpassed 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 .
Tom Gayner of Markel Gayner Asset Management
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. We’re going to view the fresh hedge fund action surrounding Rollins, Inc. (NYSE:ROL).
How have hedgies been trading Rollins, Inc. (NYSE:ROL)?
At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ROL 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.
More specifically, GAMCO Investors was the largest shareholder of Rollins, Inc. (NYSE:ROL), with a stake worth $83.1 million reported as of the end of September. Trailing GAMCO Investors was Citadel Investment Group, which amassed a stake valued at $40.8 million. AQR Capital Management, Select Equity Group, and Markel Gayner Asset Management 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 Bishop Rock Capital allocated the biggest weight to Rollins, Inc. (NYSE:ROL), around 4.63% of its portfolio. SG Capital Management is also relatively very bullish on the stock, setting aside 1.58 percent of its 13F equity portfolio to ROL.
Consequently, specific money managers were leading the bulls’ herd. Select Equity Group, managed by Robert Joseph Caruso, created the biggest position in Rollins, Inc. (NYSE:ROL). Select Equity Group had $32.7 million invested in the company at the end of the quarter. Ken Grossman and Glen Schneider’s SG Capital Management also made a $8.3 million investment in the stock during the quarter. The other funds with brand new ROL positions are Paul Tudor Jones’s Tudor Investment Corp, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Mark Coe’s Intrinsic Edge Capital.
Let’s now review hedge fund activity in other stocks similar to Rollins, Inc. (NYSE:ROL). We will take a look at Norwegian Cruise Line Holdings Ltd (NYSE:NCLH), Open Text Corporation (NASDAQ:OTEX), Pinnacle West Capital Corporation (NYSE:PNW), and DocuSign, Inc. (NASDAQ:DOCU). This group of stocks’ market caps match ROL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NCLH | 30 | 1012048 | -5 |
| OTEX | 14 | 610442 | -2 |
| PNW | 24 | 865074 | 1 |
| DOCU | 26 | 673817 | 0 |
| Average | 23.5 | 790345 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $790 million. That figure was $306 million in ROL’s case. Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) is the most popular stock in this table. On the other hand Open Text Corporation (NASDAQ:OTEX) is the least popular one with only 14 bullish hedge fund positions. Rollins, Inc. (NYSE:ROL) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 ROL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ROL were disappointed as the stock returned 5.7% during the fourth quarter (through the end of November) 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.
