It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in RYB Education, Inc. (NYSE:RYB).
Hedge fund interest in RYB Education, Inc. (NYSE:RYB) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Genesis Healthcare Inc (NYSE:GEN), NL Industries, Inc. (NYSE:NL), and BankFinancial Corporation (NASDAQ:BFIN) to gather more data points. Our calculations also showed that RYB 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 market participants, hedge funds are seen as slow, old financial vehicles of years past. While there are more than 8000 funds in operation at the moment, We choose to focus on the aristocrats of this group, around 750 funds. These hedge fund managers handle most of all hedge funds’ total capital, and by keeping an eye on their top stock picks, Insider Monkey has unearthed a few investment strategies that have historically defeated the broader indices. 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 .
John Overdeck of Two Sigma Advisors
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. Now we’re going to analyze the latest hedge fund action encompassing RYB Education, Inc. (NYSE:RYB).
How have hedgies been trading RYB Education, Inc. (NYSE:RYB)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2019. By comparison, 4 hedge funds held shares or bullish call options in RYB a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jonathan Guo’s Yiheng Capital has the biggest position in RYB Education, Inc. (NYSE:RYB), worth close to $8.8 million, comprising 1.1% of its total 13F portfolio. Coming in second is David E. Shaw of D E Shaw, with a $2.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions consist of Renaissance Technologies, John Overdeck and David Siegel’s Two Sigma Advisors and . In terms of the portfolio weights assigned to each position Yiheng Capital allocated the biggest weight to RYB Education, Inc. (NYSE:RYB), around 1.08% of its 13F portfolio. D E Shaw is also relatively very bullish on the stock, dishing out 0.0035 percent of its 13F equity portfolio to RYB.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as RYB Education, Inc. (NYSE:RYB) but similarly valued. These stocks are Genesis Healthcare Inc (NYSE:GEN), NL Industries, Inc. (NYSE:NL), BankFinancial Corporation (NASDAQ:BFIN), and IDEAYA Biosciences, Inc. (NASDAQ:IDYA). This group of stocks’ market values are closest to RYB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GEN | 4 | 5403 | -2 |
| NL | 4 | 994 | 1 |
| BFIN | 5 | 14445 | 1 |
| IDYA | 9 | 32359 | 0 |
| Average | 5.5 | 13300 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $13 million in RYB’s case. IDEAYA Biosciences, Inc. (NASDAQ:IDYA) is the most popular stock in this table. On the other hand Genesis Healthcare Inc (NYSE:GEN) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks RYB Education, Inc. (NYSE:RYB) is even less popular than GEN. Hedge funds dodged a bullet by taking a bearish stance towards RYB. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately RYB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RYB investors were disappointed as the stock returned -8.1% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.