Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 15 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 1% through March 15th whereas the S&P 500 Index ETF lost 2.2% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Regal Beloit Corporation (NYSE:RBC) from the perspective of those elite funds.
Regal Beloit Corporation (NYSE:RBC) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds’ portfolios at the end of December. At the end of this article we will also compare RBC to other stocks including Companhia Siderurgica Nacional (NYSE:SID), Emergent Biosolutions Inc (NYSE:EBS), and Semtech Corporation (NASDAQ:SMTC) to get a better sense of its popularity.
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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
Let’s review the recent hedge fund action encompassing Regal Beloit Corporation (NYSE:RBC).
What does the smart money think about Regal Beloit Corporation (NYSE:RBC)?
At Q4’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RBC over the last 14 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Regal Beloit Corporation (NYSE:RBC), with a stake worth $48.1 million reported as of the end of September. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $10.8 million. GLG Partners, Prospector Partners, and Polaris Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Regal Beloit Corporation (NYSE:RBC) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few money managers that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dropped the biggest position of the 700 funds tracked by Insider Monkey, comprising an estimated $13.2 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dropped about $2.4 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Regal Beloit Corporation (NYSE:RBC). We will take a look at Companhia Siderurgica Nacional (NYSE:SID), Emergent Biosolutions Inc (NYSE:EBS), Semtech Corporation (NASDAQ:SMTC), and Trinity Industries, Inc. (NYSE:TRN). This group of stocks’ market caps are similar to RBC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SID | 7 | 4228 | 0 |
| EBS | 16 | 197098 | 0 |
| SMTC | 19 | 117355 | 6 |
| TRN | 27 | 766580 | -6 |
| Average | 17.25 | 271315 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $271 million. That figure was $86 million in RBC’s case. Trinity Industries, Inc. (NYSE:TRN) is the most popular stock in this table. On the other hand Companhia Siderurgica Nacional (NYSE:SID) is the least popular one with only 7 bullish hedge fund positions. Regal Beloit Corporation (NYSE:RBC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on RBC, though not to the same extent, as the stock returned 20.9% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
