We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Ritchie Bros. Auctioneers (NYSE:RBA).
Is Ritchie Bros. Auctioneers (NYSE:RBA) a healthy stock for your portfolio? Investors who are in the know are in an optimistic mood. The number of bullish hedge fund positions increased by 7 in recent months. Our calculations also showed that RBA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Lee Ainslie of Maverick Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the latest hedge fund action encompassing Ritchie Bros. Auctioneers (NYSE:RBA).
How are hedge funds trading Ritchie Bros. Auctioneers (NYSE:RBA)?
At the end of the fourth quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RBA over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the largest position in Ritchie Bros. Auctioneers (NYSE:RBA), worth close to $56.3 million, comprising 0.5% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, founded by Jim Simons, which holds a $55.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that hold long positions contain Noam Gottesman’s GLG Partners, D. E. Shaw’s D E Shaw and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Ritchie Bros. Auctioneers (NYSE:RBA), around 0.5% of its 13F portfolio. GLG Partners is also relatively very bullish on the stock, designating 0.11 percent of its 13F equity portfolio to RBA.
As industrywide interest jumped, key money managers have been driving this bullishness. Maverick Capital, managed by Lee Ainslie, assembled the biggest position in Ritchie Bros. Auctioneers (NYSE:RBA). Maverick Capital had $4.2 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $1 million investment in the stock during the quarter. The following funds were also among the new RBA investors: Benjamin A. Smith’s Laurion Capital Management, Schonfeld Strategic Advisors, and Peter Muller’s PDT Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ritchie Bros. Auctioneers (NYSE:RBA) but similarly valued. These stocks are Allakos Inc. (NASDAQ:ALLK), Eldorado Resorts Inc (NASDAQ:ERI), Companhia Paranaense de Energia (NYSE:ELP), and Valley National Bancorp (NASDAQ:VLY). This group of stocks’ market values are similar to RBA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALLK | 15 | 414366 | -2 |
| ERI | 49 | 1337579 | 0 |
| ELP | 7 | 77363 | -1 |
| VLY | 24 | 61415 | 8 |
| Average | 23.75 | 472681 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $473 million. That figure was $260 million in RBA’s case. Eldorado Resorts Inc (NASDAQ:ERI) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia (NYSE:ELP) is the least popular one with only 7 bullish hedge fund positions. Ritchie Bros. Auctioneers (NYSE:RBA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately RBA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RBA investors were disappointed as the stock returned -27.2% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
