In this article we will check out the progression of hedge fund sentiment towards Reliance Steel & Aluminum Co. (NYSE:RS) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Reliance Steel & Aluminum Co. (NYSE:RS) the right pick for your portfolio? Prominent investors are becoming less hopeful. The number of long hedge fund positions were cut by 11 recently. Our calculations also showed that RS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). RS was in 23 hedge funds’ portfolios at the end of March. There were 34 hedge funds in our database with RS holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
To most shareholders, hedge funds are viewed as worthless, outdated investment vehicles of years past. While there are greater than 8000 funds in operation at present, Our researchers choose to focus on the crème de la crème of this group, about 850 funds. It is estimated that this group of investors handle bulk of the hedge fund industry’s total capital, and by keeping track of their first-class equity investments, Insider Monkey has formulated numerous investment strategies that have historically outrun Mr. Market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Chuck Royce of Royce & Associates
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the recent hedge fund action regarding Reliance Steel & Aluminum Co. (NYSE:RS).
What does smart money think about Reliance Steel & Aluminum Co. (NYSE:RS)?
At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in RS a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Reliance Steel & Aluminum Co. (NYSE:RS), with a stake worth $60.2 million reported as of the end of September. Trailing Royce & Associates was AQR Capital Management, which amassed a stake valued at $48.2 million. Millennium Management, Luminus Management, and Renaissance Technologies 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 Luminus Management allocated the biggest weight to Reliance Steel & Aluminum Co. (NYSE:RS), around 1.85% of its 13F portfolio. Scopus Asset Management is also relatively very bullish on the stock, designating 1.13 percent of its 13F equity portfolio to RS.
Because Reliance Steel & Aluminum Co. (NYSE:RS) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers who sold off their positions entirely by the end of the first quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $6.5 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund dropped about $4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 11 funds by the end of the first quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Reliance Steel & Aluminum Co. (NYSE:RS) but similarly valued. We will take a look at IPG Photonics Corporation (NASDAQ:IPGP), Natura &Co Holding S.A. (NYSE:NTCO), Proofpoint Inc (NASDAQ:PFPT), and Generac Holdings Inc. (NYSE:GNRC). This group of stocks’ market values match RS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IPGP | 20 | 150252 | -5 |
| NTCO | 8 | 66680 | 8 |
| PFPT | 27 | 315504 | -8 |
| GNRC | 29 | 192057 | -3 |
| Average | 21 | 181123 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $181 million. That figure was $211 million in RS’s case. Generac Holdings Inc. (NYSE:GNRC) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 8 bullish hedge fund positions. Reliance Steel & Aluminum Co. (NYSE:RS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but beat the market by 14.2 percentage points. Unfortunately RS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RS were disappointed as the stock returned 17.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
