Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Regal Beloit Corporation (NYSE:RBC) shareholders have witnessed an increase in hedge fund interest recently. Our calculations also showed that rbc isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We’re going to take a glance at the recent hedge fund action regarding Regal Beloit Corporation (NYSE:RBC).
Hedge fund activity in Regal Beloit Corporation (NYSE:RBC)
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in RBC at the beginning of this year. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Regal Beloit Corporation (NYSE:RBC), which was worth $56.4 million at the end of the third quarter. On the second spot was GLG Partners which amassed $18 million worth of shares. Moreover, Point72 Asset Management, AQR Capital Management, and D E Shaw were also bullish on Regal Beloit Corporation (NYSE:RBC), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, initiated the biggest position in Regal Beloit Corporation (NYSE:RBC). Point72 Asset Management had $13.2 million invested in the company at the end of the quarter. John D. Gillespie’s Prospector Partners also initiated a $3.5 million position during the quarter. The following funds were also among the new RBC investors: Lee Ainslie’s Maverick Capital, Jim Simons’s Renaissance Technologies, and Matthew Tewksbury’s Stevens Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Regal Beloit Corporation (NYSE:RBC). We will take a look at Deckers Outdoor Corp (NYSE:DECK), Kennametal Inc. (NYSE:KMT), Liberty Latin America Ltd. (NASDAQ:LILA), and Navient Corp (NASDAQ:NAVI). This group of stocks’ market caps are closest to RBC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DECK | 22 | 284198 | 2 |
| KMT | 21 | 438773 | 3 |
| LILA | 11 | 121142 | -3 |
| NAVI | 27 | 582199 | -1 |
| Average | 20.25 | 356578 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $357 million. That figure was $115 million in RBC’s case. Navient Corp (NASDAQ:NAVI) is the most popular stock in this table. On the other hand Liberty Latin America Ltd. (NASDAQ:LILA) is the least popular one with only 11 bullish hedge fund positions. Regal Beloit Corporation (NYSE:RBC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NAVI might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
