Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Republic Services, Inc. (NYSE:RSG) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Republic Services, Inc. (NYSE:RSG) investors should pay attention to a decrease in hedge fund interest lately. RSG was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 35 hedge funds in our database with RSG holdings at the end of the previous quarter. Our calculations also showed that RSG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Richard Chilton of Chilton Investment Company
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s analyze the recent hedge fund action regarding Republic Services, Inc. (NYSE:RSG).
Hedge fund activity in Republic Services, Inc. (NYSE:RSG)
At Q4’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the third quarter of 2019. On the other hand, there were a total of 30 hedge funds with a bullish position in RSG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Cliff Asness’s AQR Capital Management has the number one position in Republic Services, Inc. (NYSE:RSG), worth close to $194.6 million, accounting for 0.2% of its total 13F portfolio. Coming in second is GAMCO Investors, led by Mario Gabelli, holding a $130.9 million position; 1% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish encompass Richard Chilton’s Chilton Investment Company, John Overdeck and David Siegel’s Two Sigma Advisors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Appian Way Asset Management allocated the biggest weight to Republic Services, Inc. (NYSE:RSG), around 5.63% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, dishing out 3.06 percent of its 13F equity portfolio to RSG.
Seeing as Republic Services, Inc. (NYSE:RSG) has experienced falling interest from the smart money, it’s easy to see that there lies a certain “tier” of fund managers that slashed their positions entirely heading into Q4. Intriguingly, Israel Englander’s Millennium Management dumped the largest stake of the 750 funds watched by Insider Monkey, comprising close to $16.4 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dumped about $7.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 9 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Republic Services, Inc. (NYSE:RSG) but similarly valued. We will take a look at TAL Education Group (NYSE:TAL), T. Rowe Price Group, Inc. (NASDAQ:TROW), Mercadolibre Inc (NASDAQ:MELI), and Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK). This group of stocks’ market values are closest to RSG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TAL | 30 | 1805173 | 9 |
| TROW | 27 | 215816 | 3 |
| MELI | 52 | 2809834 | 4 |
| TLK | 8 | 210873 | 0 |
| Average | 29.25 | 1260424 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $1260 million. That figure was $684 million in RSG’s case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 8 bullish hedge fund positions. Republic Services, Inc. (NYSE:RSG) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on RSG as the stock returned 1.8% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
