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 Regional Management Corp (NYSE:RM).
Is Regional Management Corp (NYSE:RM) a sound investment right now? Investors who are in the know are becoming less hopeful. The number of bullish hedge fund positions were cut by 2 lately. Our calculations also showed that RM isn’t among the 30 most popular stocks among hedge funds (see the video below). RM was in 11 hedge funds’ portfolios at the end of June. There were 13 hedge funds in our database with RM holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most investors, hedge funds are perceived as underperforming, old investment vehicles of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our researchers look at the masters of this club, around 750 funds. These investment experts orchestrate the lion’s share of the hedge fund industry’s total asset base, and by observing their best equity investments, Insider Monkey has discovered a number of investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
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. Let’s take a look at the new hedge fund action encompassing Regional Management Corp (NYSE:RM).
How are hedge funds trading Regional Management Corp (NYSE:RM)?
At Q2’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RM over the last 16 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Basswood Capital, managed by Matthew Lindenbaum, holds the number one position in Regional Management Corp (NYSE:RM). Basswood Capital has a $37.7 million position in the stock, comprising 2.3% of its 13F portfolio. Coming in second is Renaissance Technologies, with a $12 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions consist of Noam Gottesman’s GLG Partners, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Cliff Asness’s AQR Capital Management.
Judging by the fact that Regional Management Corp (NYSE:RM) has experienced falling interest from the smart money, it’s easy to see that there were a few funds who were dropping their positions entirely by the end of the second quarter. Intriguingly, J. Carlo Cannell’s Cannell Capital dropped the biggest investment of the 750 funds watched by Insider Monkey, worth about $9.5 million in stock, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital was right behind this move, as the fund sold off about $0.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds by the end of the second quarter.
Let’s also examine hedge fund activity in other stocks similar to Regional Management Corp (NYSE:RM). These stocks are RTI Surgical Holdings, Inc. (NASDAQ:RTIX), Rayonier Advanced Materials Inc (NYSE:RYAM), On Deck Capital Inc (NYSE:ONDK), and USD Partners LP (NYSE:USDP). This group of stocks’ market values resemble RM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RTIX | 12 | 28614 | -2 |
| RYAM | 23 | 57988 | -1 |
| ONDK | 18 | 91532 | -1 |
| USDP | 3 | 4457 | -1 |
| Average | 14 | 45648 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $68 million in RM’s case. Rayonier Advanced Materials Inc (NYSE:RYAM) is the most popular stock in this table. On the other hand USD Partners LP (NYSE:USDP) is the least popular one with only 3 bullish hedge fund positions. Regional Management Corp (NYSE:RM) is not the least popular stock in this group but hedge fund interest is still below average. 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 RM as the stock returned 6.8% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
