Hedge Funds Are Selling Resolute Forest Products Inc (RFP)

The third quarter was a rough one for most investors, as fears of an interest rate hike in the U.S, a weakening economy in China, and a stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards Resolute Forest Products Inc (NYSE:RFP), and what that likely means for the prospects of the company and its stock.

Is Resolute Forest Products Inc (NYSE:RFP) worth your attention right now? Investors who are in the know are reducing their bets on the stock. The number of bullish hedge fund bets dropped by 2 lately. 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 EZchip Semiconductor Ltd. (NASDAQ:EZCH), Crossamerica Partners LP (NYSE:CAPL), and City Holding Company (NASDAQ:CHCO) to gather more data points.

To most shareholders, hedge funds are assumed to be slow, outdated financial vehicles of yesteryear. While there are more than 8000 funds with their doors open today, Our researchers hone in on the upper echelon of this club, approximately 700 funds. These investment experts direct the lion’s share of all hedge funds’ total capital, and by observing their highest performing equity investments, Insider Monkey has found many investment strategies that have historically defeated the broader indices. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Keeping this in mind, we’re going to check out the key action encompassing Resolute Forest Products Inc (NYSE:RFP).

How have hedgies been trading Resolute Forest Products Inc (NYSE:RFP)?

At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 9% from the previous quarter. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Prem Watsa’s Fairfax Financial Holdings has the largest position in Resolute Forest Products Inc (NYSE:RFP), worth close to $241.1 million, corresponding to 22.3% of its total 13F portfolio. Sitting at the No. 2 spot is Steelhead Partners, led by Michael Johnston, holding a $57.8 million position; 6.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish consist of Francis Chou’s Chou Associates Management, Michael Price’s MFP Investors and Scott Wallace’s Wallace Capital Management.

Judging by the fact that Resolute Forest Products Inc (NYSE:RFP) has witnessed falling interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedgies who were dropping their entire stakes in the third quarter. It’s worth mentioning that Jon Bauer’s Contrarian Capital dumped the largest position of the “upper crust” of funds followed by Insider Monkey, totaling about $8.7 million in stock, and Neil Chriss’s Hutchin Hill Capital was right behind this move, as the fund sold off about $0.6 million worth of shares. These transactions are important to note, as total hedge fund interest fell by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Resolute Forest Products Inc (NYSE:RFP) but similarly valued. These stocks are EZchip Semiconductor Ltd. (NASDAQ:EZCH), Crossamerica Partners LP (NYSE:CAPL), City Holding Company (NASDAQ:CHCO), and Biglari Holdings Inc (NYSE:BH). This group of stocks’ market caps are similar to RFP’s market cap.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $368 million in RFP’s case. EZchip Semiconductor Ltd. (NASDAQ:EZCH) is the most popular stock in this table, while Crossamerica Partners LP (NYSE:CAPL) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Resolute Forest Products Inc (NYSE:RFP) is more popular among hedge funds and has attracted a lot more of hedgies’ money. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.