Did Hedge Funds Make The Right Call On Rollins, Inc. (ROL) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Rollins, Inc. (NYSE:ROL) based on that data and determine whether they were really smart about the stock.

Rollins, Inc. (NYSE:ROL) investors should pay attention to a decrease in hedge fund interest of late. Our calculations also showed that ROL 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).

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

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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s review the recent hedge fund action regarding Rollins, Inc. (NYSE:ROL).

What have hedge funds been doing with Rollins, Inc. (NYSE:ROL)?

Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in ROL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the largest position in Rollins, Inc. (NYSE:ROL). Select Equity Group has a $197.4 million position in the stock, comprising 1.4% of its 13F portfolio. Coming in second is Mario Gabelli of GAMCO Investors, with a $85.1 million position; the fund has 1% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Cliff Asness’s AQR Capital Management, Tom Gayner’s Markel Gayner Asset Management and Tim Curro’s Value Holdings LP. In terms of the portfolio weights assigned to each position Value Holdings LP allocated the biggest weight to Rollins, Inc. (NYSE:ROL), around 11.39% of its 13F portfolio. Bishop Rock Capital is also relatively very bullish on the stock, designating 5.62 percent of its 13F equity portfolio to ROL.

Because Rollins, Inc. (NYSE:ROL) has witnessed bearish sentiment from the smart money, logic holds that there lies a certain “tier” of hedgies who sold off their positions entirely heading into Q4. It’s worth mentioning that Noam Gottesman’s GLG Partners dropped the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $7.3 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund sold off about $6.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 9 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Rollins, Inc. (NYSE:ROL). We will take a look at Alliant Energy Corporation (NYSE:LNT), Martin Marietta Materials, Inc. (NYSE:MLM), Mid America Apartment Communities Inc (NYSE:MAA), and Xylem Inc (NYSE:XYL). This group of stocks’ market values are similar to ROL’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $678 million. That figure was $448 million in ROL’s case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand Mid America Apartment Communities Inc (NYSE:MAA) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Rollins, Inc. (NYSE:ROL) is even less popular than MAA. Hedge funds dodged a bullet by taking a bearish stance towards ROL. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately ROL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ROL investors were disappointed as the stock returned 17.5% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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