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 Regalwood Global Energy Ltd. (NYSE:RWGE).
Hedge fund interest in Regalwood Global Energy Ltd. (NYSE:RWGE) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare RWGE to other stocks including Smart & Final Stores Inc (NYSE:SFS), RBB Bancorp (NASDAQ:RBB), and The Meet Group, Inc. (NASDAQ:MEET) to get a better sense of its popularity.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let’s go over the latest hedge fund action regarding Regalwood Global Energy Ltd. (NYSE:RWGE).
How are hedge funds trading Regalwood Global Energy Ltd. (NYSE:RWGE)?
At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2018. By comparison, 14 hedge funds held shares or bullish call options in RWGE a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Adage Capital Management was the largest shareholder of Regalwood Global Energy Ltd. (NYSE:RWGE), with a stake worth $20.2 million reported as of the end of March. Trailing Adage Capital Management was Angelo Gordon & Co, which amassed a stake valued at $17.2 million. Weiss Asset Management, Fir Tree, and Governors Lane were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Glazer Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Glazer Capital).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Regalwood Global Energy Ltd. (NYSE:RWGE) but similarly valued. These stocks are Smart & Final Stores Inc (NYSE:SFS), RBB Bancorp (NASDAQ:RBB), The Meet Group, Inc. (NASDAQ:MEET), and BioDelivery Sciences International, Inc. (NASDAQ:BDSI). This group of stocks’ market valuations resemble RWGE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SFS | 12 | 24066 | -2 |
| RBB | 5 | 8338 | 2 |
| MEET | 15 | 75550 | 5 |
| BDSI | 18 | 124266 | 3 |
| Average | 12.5 | 58055 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $134 million in RWGE’s case. BioDelivery Sciences International, Inc. (NASDAQ:BDSI) is the most popular stock in this table. On the other hand RBB Bancorp (NASDAQ:RBB) is the least popular one with only 5 bullish hedge fund positions. Regalwood Global Energy Ltd. (NYSE:RWGE) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately RWGE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RWGE were disappointed as the stock returned 1.5% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.