The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small-cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small-cap stocks. In this article, we take a closer look at Rapid7 Inc (NASDAQ:RPD) from the perspective of those successful funds.
Hedge fund interest in Rapid7 Inc (NASDAQ:RPD) shares was flat during the third quarter. This is usually a negative indicator. 7 hedge funds that we track owned the stock on September 30, same as on June 30. 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 Superior Industries International Inc. (NYSE:SUP), S.Y. Bancorp, Inc. (NASDAQ:SYBT), and Overseas Shipholding Group, Inc. Class A (NYSE:OSG) to gather more data points.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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How have hedgies been trading Rapid7 Inc (NASDAQ:RPD)?
Heading into the fourth quarter of 2016, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the previous quarter. By comparison, no hedge funds held shares or bullish call options in RPD heading into this year, after bottoming out in Q4 2015. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Polar Capital, led by Brian Ashford-Russell and Tim Woolley, holds the most valuable position in Rapid7 Inc (NASDAQ:RPD). Polar Capital has a $5.7 million position in the stock. The second most bullish fund manager is PEAK6 Capital Management, led by Matthew Hulsizer, which holds a $4 million call position. Some other members of the smart money with similar optimism contain Millennium Management, one of the biggest hedge funds in the world, Paul Tudor Jones’ Tudor Investment Corp, and Columbus Circle Investors. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.
Since Rapid7 Inc (NASDAQ:RPD) has sustained a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of hedgies that elected to cut their positions entirely heading into Q4. Interestingly, Anand Parekh’s Alyeska Investment Group dumped the biggest investment of the “upper crust” of funds studied by Insider Monkey, comprising an estimated $6.4 million in stock. Philip Hempleman’s fund, Ardsley Partners, also sold off its stock, about $0.2 million worth.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Rapid7 Inc (NASDAQ:RPD) but similarly valued. These stocks are Superior Industries International Inc. (NYSE:SUP), S.Y. Bancorp, Inc. (NASDAQ:SYBT), Overseas Shipholding Group, Inc. Class A (NYSE:OSG), and ZIOPHARM Oncology Inc. (NASDAQ:ZIOP). This group of stocks’ market caps match RPD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SUP | 14 | 88612 | -2 |
| SYBT | 5 | 1786 | 5 |
| OSG | 20 | 121174 | 5 |
| ZIOP | 7 | 22444 | -4 |
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $17 million in RPD’s case. Overseas Shipholding Group, Inc. Class A (NYSE:OSG) is the most popular stock in this table. On the other hand S.Y. Bancorp, Inc. (NASDAQ:SYBT) is the least popular one with only 5 bullish hedge fund positions. Rapid7 Inc (NASDAQ:RPD) 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. In this regard OSG might be a better candidate to consider taking a long position in.
Disclosure: None
