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 20 stocks among hedge funds beat the S&P 500 Index ETF by 4 percentage points so far this year. 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 Regalwood Global Energy Ltd. (NYSE:RWGE) from the perspective of those elite funds.
Regalwood Global Energy Ltd. (NYSE:RWGE) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds’ portfolios at the end of the second quarter of 2019. 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 Village Super Market, Inc. (NASDAQ:VLGEA), Old Second Bancorp Inc. (NASDAQ:OSBC), and Lands’ End, Inc. (NASDAQ:LE) to gather more data points. Our calculations also showed that RWGE 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
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 key hedge fund action surrounding Regalwood Global Energy Ltd. (NYSE:RWGE).
What have hedge funds been doing with Regalwood Global Energy Ltd. (NYSE:RWGE)?
At Q2’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in RWGE a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Phill Gross and Robert Atchinson’s Adage Capital Management has the largest position in Regalwood Global Energy Ltd. (NYSE:RWGE), worth close to $20.4 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is Angelo Gordon & Co, managed by John M. Angelo and Michael L. Gordon, which holds a $16.3 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism consist of Jeffrey Tannenbaum’s Fir Tree, Isaac Corre’s Governors Lane and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the second quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now review hedge fund activity in other stocks similar to Regalwood Global Energy Ltd. (NYSE:RWGE). We will take a look at Village Super Market, Inc. (NASDAQ:VLGEA), Old Second Bancorp Inc. (NASDAQ:OSBC), Lands’ End, Inc. (NASDAQ:LE), and PDL BioPharma Inc. (NASDAQ:PDLI). This group of stocks’ market valuations match RWGE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VLGEA | 8 | 45463 | 0 |
| OSBC | 12 | 34682 | 0 |
| LE | 12 | 71897 | -2 |
| PDLI | 13 | 66848 | -5 |
| Average | 11.25 | 54723 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $120 million in RWGE’s case. PDL BioPharma Inc. (NASDAQ:PDLI) is the most popular stock in this table. On the other hand Village Super Market, Inc. (NASDAQ:VLGEA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Regalwood Global Energy Ltd. (NYSE:RWGE) is more popular among hedge funds. 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. 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 1.2% during the third quarter 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
