Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Ready Capital Corporation (NYSE:RC) from the perspective of those elite funds.
Is Ready Capital Corporation (NYSE:RC) a safe investment today? Investors who are in the know are selling. The number of long hedge fund positions were cut by 8 recently. Our calculations also showed that RC isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the latest hedge fund action encompassing Ready Capital Corporation (NYSE:RC).
How have hedgies been trading Ready Capital Corporation (NYSE:RC)?
At Q2’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -57% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RC over the last 16 quarters. 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, Farallon Capital, holds the largest position in Ready Capital Corporation (NYSE:RC). Farallon Capital has a $33.4 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Andrew Weiss of Weiss Asset Management, with a $7.1 million position; 0.4% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish encompass Ron Mass’s Almitas Capital, David Harding’s Winton Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors.
Judging by the fact that Ready Capital Corporation (NYSE:RC) has witnessed declining sentiment from the smart money, logic holds that there was a specific group of hedgies that decided to sell off their entire stakes in the second quarter. Interestingly, Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, comprising an estimated $9.5 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund cut about $2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 8 funds in the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Ready Capital Corporation (NYSE:RC). These stocks are Akorn, Inc. (NASDAQ:AKRX), Winmark Corporation (NASDAQ:WINA), Universal Logistics Holdings, Inc. (NASDAQ:ULH), and NextDecade Corporation (NASDAQ:NEXT). This group of stocks’ market values resemble RC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AKRX | 14 | 116153 | -2 |
| WINA | 6 | 92656 | -1 |
| ULH | 13 | 28485 | 3 |
| NEXT | 9 | 535292 | 2 |
| Average | 10.5 | 193147 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $46 million in RC’s case. Akorn, Inc. (NASDAQ:AKRX) is the most popular stock in this table. On the other hand Winmark Corporation (NASDAQ:WINA) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Ready Capital Corporation (NYSE:RC) is even less popular than WINA. Hedge funds clearly dropped the ball on RC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on RC as the stock returned 9.5% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
