Was The Smart Money Right About Republic Services, Inc. (RSG)?

We at Insider Monkey have gone over 873 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 June 30th. In this article, we look at what those funds think of Republic Services, Inc. (NYSE:RSG) based on that data.

Is Republic Services, Inc. (NYSE:RSG) a marvelous investment today? Prominent investors were getting less optimistic. The number of bullish hedge fund positions decreased by 2 lately. Republic Services, Inc. (NYSE:RSG) was in 34 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 37. Our calculations also showed that RSG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Zilvinas Mecelis of Covalis Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to analyze the fresh hedge fund action regarding Republic Services, Inc. (NYSE:RSG).

Do Hedge Funds Think RSG Is A Good Stock To Buy Now?

At second quarter’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 37 hedge funds with a bullish position in RSG a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Republic Services, Inc. (NYSE:RSG) was held by AQR Capital Management, which reported holding $174.5 million worth of stock at the end of June. It was followed by Chilton Investment Company with a $145.4 million position. Other investors bullish on the company included Adage Capital Management, Millennium Management, and Two Sigma Advisors. 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 5.52% of its 13F portfolio. Covalis Capital is also relatively very bullish on the stock, designating 3.84 percent of its 13F equity portfolio to RSG.

Seeing as Republic Services, Inc. (NYSE:RSG) has experienced falling interest from the smart money, we can see that there lies a certain “tier” of fund managers that slashed their entire stakes by the end of the second quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest position of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $4 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund dropped about $1.7 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds by the end of the second quarter.

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 Otis Worldwide Corporation (NYSE:OTIS), SBA Communications Corporation (NASDAQ:SBAC), Corning Incorporated (NYSE:GLW), Welltower Inc. (NYSE:WELL), Nutrien Ltd. (NYSE:NTR), KKR & Co Inc. (NYSE:KKR), and LyondellBasell Industries NV (NYSE:LYB). This group of stocks’ market caps are similar to RSG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.9 hedge funds with bullish positions and the average amount invested in these stocks was $1764 million. That figure was $1289 million in RSG’s case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand Welltower Inc. (NYSE:WELL) is the least popular one with only 19 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 overall hedge fund sentiment score for RSG is 52. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and 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 21.1% since the end of the second quarter (through 11/5) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.