It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Rosetta Stone Inc (NYSE:RST).
Rosetta Stone Inc (NYSE:RST) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds’ portfolios at the end of September, same as at the end of June. At the end of this article we will also compare RST to other stocks including Planet Payment Inc (NASDAQ:PLPM), Graham Corporation (NYSEAMEX:GHM), and Veritex Holdings Inc (NASDAQ:VBTX) to get a better sense of its popularity.
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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What have hedge funds been doing with Rosetta Stone Inc (NYSE:RST)?
Heading into the fourth quarter of 2016, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the previous quarter. The graph below displays the number of hedge funds with bullish positions in RST over the last 5 quarters, which have declined by 2 over the past year. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, John W. Rogers’ Ariel Investments has the most valuable position in Rosetta Stone Inc (NYSE:RST), worth close to $45.4 million. The second largest stake is held by John H Lewis of Osmium Partners, with a $17.2 million position; the fund has 14.2% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism encompass Renaissance Technologies, one of the largest hedge funds in the world, Jim Roumell’s Roumell Asset Management, and Mark N. Diker’s Diker Management. We should note that Diker Management is among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-microcap stocks.
Because Rosetta Stone Inc (NYSE:RST) has experienced a decline in interest from the smart money, logic holds that there lies a certain “tier” of money managers who sold off their positions entirely by the end of the third quarter. Intriguingly, Bruce Salomon’s Elberon Capital dumped the largest investment of the 700 funds watched by Insider Monkey, worth an estimated $2.5 million in stock. John H Lewis’ fund, Osmium Partners, also sold off its call options, about $0.2 million worth.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Rosetta Stone Inc (NYSE:RST) but similarly valued. These stocks are Planet Payment Inc (NASDAQ:PLPM), Graham Corporation (NYSEAMEX:GHM), Veritex Holdings Inc (NASDAQ:VBTX), and Alliance One International, Inc. (NYSE:AOI). This group of stocks’ market caps are closest to RST’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLPM | 10 | 11707 | -1 |
| GHM | 8 | 22646 | 1 |
| VBTX | 6 | 26307 | -1 |
| AOI | 5 | 24899 | -2 |
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $94 million in RST’s case. Planet Payment Inc (NASDAQ:PLPM) is the most popular stock in this table. On the other hand Alliance One International, Inc. (NYSE:AOI) is the least popular one with only 5 bullish hedge fund positions. Rosetta Stone Inc (NYSE:RST) is tied as the most popular stock in this group and the most money invested in it. This is a positive signal, as we’d rather spend our time researching stocks that hedge funds are overweight. In this regard RST might be a good candidate to consider taking a long position in.
Disclosure: None
