We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Rent-A-Center Inc (NASDAQ:RCII) based on that data.
Is Rent-A-Center Inc (NASDAQ:RCII) a great investment today? Hedge funds are in a bearish mood. The number of bullish hedge fund bets dropped by 4 in recent months. Our calculations also showed that RCII isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). RCII was in 25 hedge funds’ portfolios at the end of December. There were 29 hedge funds in our database with RCII positions at the end of the previous quarter.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Glenn Welling of Engaged Capital
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the recent hedge fund action surrounding Rent-A-Center Inc (NASDAQ:RCII).
How have hedgies been trading Rent-A-Center Inc (NASDAQ:RCII)?
Heading into the first quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the third quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in RCII a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Engaged Capital held the most valuable stake in Rent-A-Center Inc (NASDAQ:RCII), which was worth $153.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $126.5 million worth of shares. Royce & Associates, Cloverdale Capital Management, and Arrowstreet Capital 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 Engaged Capital allocated the biggest weight to Rent-A-Center Inc (NASDAQ:RCII), around 15.98% of its 13F portfolio. Cloverdale Capital Management is also relatively very bullish on the stock, dishing out 13.19 percent of its 13F equity portfolio to RCII.
Since Rent-A-Center Inc (NASDAQ:RCII) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of money managers that slashed their entire stakes by the end of the third quarter. It’s worth mentioning that Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners said goodbye to the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $24.1 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund cut about $1.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Rent-A-Center Inc (NASDAQ:RCII). These stocks are AAR Corp. (NYSE:AIR), Moelis & Company (NYSE:MC), Arbor Realty Trust, Inc. (NYSE:ABR), and Youdao, Inc. (NYSE:DAO). All of these stocks’ market caps are closest to RCII’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AIR | 23 | 123873 | 3 |
| MC | 13 | 82176 | -5 |
| ABR | 21 | 116544 | 7 |
| DAO | 3 | 3663 | 3 |
| Average | 15 | 81564 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $436 million in RCII’s case. AAR Corp. (NYSE:AIR) is the most popular stock in this table. On the other hand Youdao, Inc. (NYSE:DAO) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Rent-A-Center Inc (NASDAQ:RCII) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately RCII wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RCII were disappointed as the stock returned -49.1% during the three months of 2020 (through April 6th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
