Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Ritchie Bros. Auctioneers (USA) (NYSE:RBA) has experienced an increase in support from the world’s most successful money managers of late. RBA was in 16 hedge funds’ portfolios at the end of September. There were 11 hedge funds in our database with RBA positions at the end of the previous quarter. 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 MAXIMUS, Inc. (NYSE:MMS), WGL Holdings Inc (NYSE:WGL), and Telecom Argentina S.A. (ADR) (NYSE:TEO) to gather more data points.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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What have hedge funds been doing with Ritchie Bros. Auctioneers (USA) (NYSE:RBA)?
Heading into the fourth quarter of 2016, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 45% surge from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RBA over the last 5 quarters, which shows a steep decline heading into this year, followed by a slight rebound. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Royce & Associates, led by Chuck Royce, holds the largest position in Ritchie Bros. Auctioneers (USA) (NYSE:RBA). Royce & Associates has a $137.4 million position in the stock. On Royce & Associates’s heels is David E. Shaw’s D E Shaw, with a $13.2 million position. Some other hedge funds and institutional investors with similar optimism include Principal Global Investors’ Columbus Circle Investors, Cliff Asness’ AQR Capital Management, and Tom Gayner’s Markel Gayner Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As aggregate interest increased, key money managers were breaking ground themselves. Columbus Circle Investors created the most outsized position in Ritchie Bros. Auctioneers (USA) (NYSE:RBA). Columbus Circle Investors had $10.4 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $3.6 million position during the quarter. The other funds with new positions in the stock are Jim Simons’ Renaissance Technologies, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Israel Englander’s Millennium Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ritchie Bros. Auctioneers (USA) (NYSE:RBA) but similarly valued. These stocks are MAXIMUS, Inc. (NYSE:MMS), WGL Holdings Inc (NYSE:WGL), Telecom Argentina S.A. (ADR) (NYSE:TEO), and Tallgrass Energy GP LP (NYSE:TEGP). This group of stocks’ market caps are closest to RBA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MMS | 10 | 24520 | 1 |
| WGL | 13 | 81874 | 1 |
| TEO | 10 | 85073 | -1 |
| TEGP | 6 | 33779 | -1 |
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $184 million in RBA’s case. WGL Holdings Inc (NYSE:WGL) is the most popular stock in this table. On the other hand Tallgrass Energy GP LP (NYSE:TEGP) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Ritchie Bros. Auctioneers (USA) (NYSE:RBA) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers and have a lot more money invested in it, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
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