Do Hedge Funds Love Rent-A-Center Inc (RCII)?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Rent-A-Center Inc (NASDAQ:RCII) , and what that likely means for the prospects of the company and its stock.

Is Rent-A-Center Inc (NASDAQ:RCII) going to take off soon? Prominent investors are getting less bullish. The number of bullish hedge fund positions that are disclosed in regulatory 13F filings suffered a reduction of 1 in recent months. RCIIwas in 18 hedge funds’ portfolios at the end of the third quarter of 2016. There were 19 hedge funds in our database with RCII positions at the end of the previous quarter. At the end of this article we will also compare RCII to other stocks including SciClone Pharmaceuticals, Inc. (NASDAQ:SCLN), Triangle Capital Corporation (NYSE:TCAP), and United Financial Bancorp, Inc. (NASDAQ:UBNK) to get a better sense of its popularity.

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.

Now, we’re going to check out the fresh action encompassing Rent-A-Center Inc (NASDAQ:RCII).

Hedge fund activity in Rent-A-Center Inc (NASDAQ:RCII)

At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RCII over the last 5 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Pzena Investment Management, led by Richard S. Pzena, holds the most valuable position in Rent-A-Center Inc (NASDAQ:RCII). According to its latest 13F filing, the fund has a $23.1 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is David E Shaw’s D E Shaw, which holds an $11.1 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism contain Ron Gutfleish’s Elm Ridge Capital, Chuck Royce’s Royce & Associates and Jim Simons’s Renaissance Technologies. We should note that Elm Ridge Capital is 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.

Since Rent-A-Center Inc (NASDAQ:RCII) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of fund managers who were dropping their entire stakes in the third quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group said goodbye to the biggest position of all the investors studied by Insider Monkey, comprising an estimated $4.2 million in call options and about $0.5 million worth of RCII shares.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Rent-A-Center Inc (NASDAQ:RCII) but similarly valued. These stocks are SciClone Pharmaceuticals, Inc. (NASDAQ:SCLN), Triangle Capital Corporation (NYSE:TCAP), United Financial Bancorp, Inc. (NASDAQ:UBNK), and AeroVironment, Inc. (NASDAQ:AVAV). This group of stocks’ market values resemble RCII’s market value.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $74 million in RCII’s case. SciClone Pharmaceuticals, Inc. (NASDAQ:SCLN) is the most popular stock in this table. On the other hand AeroVironment, Inc. (NASDAQ:AVAV) is the least popular one with only 5 bullish hedge fund positions. Rent-A-Center Inc (NASDAQ:RCII) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SCLN might be a better candidate to consider taking a long position in.

Disclosure: none.