The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH), and what that likely means for the prospects of the company and its stock.
Hedge fund interest in Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) shares was flat at the end of last quarter. This is usually a negative indicator. 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 W&T Offshore, Inc. (NYSE:WTI), Argan, Inc. (NYSEAMEX:AGX), and Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) to gather more data points. Our calculations also showed that RUTH 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.
To most market participants, hedge funds are perceived as unimportant, old investment tools of the past. While there are greater than 8000 funds in operation today, Our experts choose to focus on the masters of this club, about 750 funds. These hedge fund managers watch over most of all hedge funds’ total capital, and by monitoring their first-class picks, Insider Monkey has spotted a few investment strategies that have historically outstripped the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Israel Englander of Millennium Management
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. Let’s take a glance at the fresh hedge fund action regarding Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH).
What does smart money think about Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH)?
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in RUTH a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH), with a stake worth $9.6 million reported as of the end of September. Trailing Millennium Management was AQR Capital Management, which amassed a stake valued at $8.9 million. Arrowstreet Capital, GLG Partners, 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 Prospector Partners allocated the biggest weight to Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH), around 0.37% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to RUTH.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Zebra Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was PEAK6 Capital Management).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) but similarly valued. These stocks are W&T Offshore, Inc. (NYSE:WTI), Argan, Inc. (NYSEAMEX:AGX), Heritage-Crystal Clean, Inc. (NASDAQ:HCCI), and TigerLogic Corp. (NASDAQ:TIGR). All of these stocks’ market caps are closest to RUTH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WTI | 19 | 73231 | -3 |
| AGX | 11 | 73282 | 1 |
| HCCI | 12 | 68416 | 3 |
| TIGR | 1 | 147 | -3 |
| Average | 10.75 | 53769 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $50 million in RUTH’s case. W&T Offshore, Inc. (NYSE:WTI) is the most popular stock in this table. On the other hand TigerLogic Corp. (NASDAQ:TIGR) is the least popular one with only 1 bullish hedge fund positions. Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on RUTH as the stock returned 15.1% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
