Did Hedge Funds Make The Right Call On Herc Holdings Inc. (HRI) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Herc Holdings Inc. (NYSE:HRI) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Herc Holdings Inc. (NYSE:HRI) a buy right now? The best stock pickers were turning less bullish. The number of long hedge fund bets dropped by 4 recently. Our calculations also showed that HRI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). HRI was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with HRI holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 58 percentage points since March 2017 (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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a peek at the new hedge fund action encompassing Herc Holdings Inc. (NYSE:HRI).

Hedge fund activity in Herc Holdings Inc. (NYSE:HRI)

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in HRI a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Icahn Capital LP, managed by Carl Icahn, holds the biggest position in Herc Holdings Inc. (NYSE:HRI). Icahn Capital LP has a $92 million position in the stock, comprising 0.5% of its 13F portfolio. The second largest stake is held by Mario Gabelli of GAMCO Investors, with a $76.1 million position; 0.9% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions include Jared Nussbaum’s Nut Tree Capital, Renaissance Technologies and Jonathan Kolatch’s Redwood Capital Management. In terms of the portfolio weights assigned to each position Nut Tree Capital allocated the biggest weight to Herc Holdings Inc. (NYSE:HRI), around 6.88% of its 13F portfolio. Redwood Capital Management is also relatively very bullish on the stock, setting aside 1.73 percent of its 13F equity portfolio to HRI.

Because Herc Holdings Inc. (NYSE:HRI) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few hedgies that slashed their entire stakes heading into Q4. It’s worth mentioning that Richard S. Meisenberg’s ACK Asset Management cut the largest position of the 750 funds watched by Insider Monkey, valued at an estimated $8 million in stock. Richard Driehaus’s fund, Driehaus Capital, also dumped its stock, about $3.4 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 4 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Herc Holdings Inc. (NYSE:HRI) but similarly valued. These stocks are ImmunoGen, Inc. (NASDAQ:IMGN), Columbus McKinnon Corporation (NASDAQ:CMCO), Accel Entertainment, Inc. (NYSE:ACEL), and Changyou.Com Ltd (NASDAQ:CYOU). All of these stocks’ market caps are similar to HRI’s market cap.

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As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $232 million in HRI’s case. ImmunoGen, Inc. (NASDAQ:IMGN) is the most popular stock in this table. On the other hand Changyou.Com Ltd (NASDAQ:CYOU) is the least popular one with only 10 bullish hedge fund positions. Herc Holdings Inc. (NYSE:HRI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on HRI as the stock returned 75.9% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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