Is Ritchie Bros. Auctioneers (RBA) Going to Burn These Hedge Funds?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Ritchie Bros. Auctioneers (NYSE:RBA).

Ritchie Bros. Auctioneers (NYSE:RBA) shareholders have witnessed an increase in hedge fund sentiment of late. RBA was in 13 hedge funds’ portfolios at the end of the third quarter of 2019. There were 12 hedge funds in our database with RBA holdings at the end of the previous quarter. Our calculations also showed that RBA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Chuck Royce of Royce & Associates

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the key hedge fund action surrounding Ritchie Bros. Auctioneers (NYSE:RBA).

What have hedge funds been doing with Ritchie Bros. Auctioneers (NYSE:RBA)?

At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RBA over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Royce & Associates was the largest shareholder of Ritchie Bros. Auctioneers (NYSE:RBA), with a stake worth $61.1 million reported as of the end of September. Trailing Royce & Associates was Renaissance Technologies, which amassed a stake valued at $30.2 million. D E Shaw, Balyasny Asset Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Ritchie Bros. Auctioneers (NYSE:RBA), around 0.57% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, designating 0.12 percent of its 13F equity portfolio to RBA.

As aggregate interest increased, some big names were leading the bulls’ herd. Marshall Wace, managed by Paul Marshall and Ian Wace, established the biggest position in Ritchie Bros. Auctioneers (NYSE:RBA). Marshall Wace had $9.9 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also made a $5 million investment in the stock during the quarter. The only other fund with a brand new RBA position is Matthew Tewksbury’s Stevens Capital Management.

Let’s now review hedge fund activity in other stocks similar to Ritchie Bros. Auctioneers (NYSE:RBA). We will take a look at CIT Group Inc. (NYSE:CIT), Six Flags Entertainment Corp (NYSE:SIX), LG Display Co Ltd. (NYSE:LPL), and Deckers Outdoor Corp (NASDAQ:DECK). This group of stocks’ market caps match RBA’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $469 million. That figure was $186 million in RBA’s case. Six Flags Entertainment Corp (NYSE:SIX) is the most popular stock in this table. On the other hand LG Display Co Ltd. (NYSE:LPL) is the least popular one with only 3 bullish hedge fund positions. Ritchie Bros. Auctioneers (NYSE:RBA) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on RBA, though not to the same extent, as the stock returned 8.3% during the first two months of the fourth quarter and outperformed the market.

Disclosure: None. This article was originally published at Insider Monkey.