Did Hedge Funds Make The Right Call On Rosetta Stone Inc (RST) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Rosetta Stone Inc (NYSE:RST) and determine whether the smart money was really smart about this stock.

Rosetta Stone Inc (NYSE:RST) was in 22 hedge funds’ portfolios at the end of the first quarter of 2020. RST has experienced an increase in enthusiasm from smart money recently. There were 18 hedge funds in our database with RST positions at the end of the previous quarter. Our calculations also showed that RST 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.

Today there are several signals stock market investors have at their disposal to grade stocks. Two of the best signals are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the best investment managers can outpace the broader indices by a very impressive amount (see the details here).

Arnaud Ajdler Engine Capital

Arnaud Ajdler of Engine Capital

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. With all of this in mind let’s review the key hedge fund action encompassing Rosetta Stone Inc (NYSE:RST).

How are hedge funds trading Rosetta Stone Inc (NYSE:RST)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RST over the last 18 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Rosetta Stone Inc (NYSE:RST), which was worth $21.9 million at the end of the third quarter. On the second spot was Osmium Partners which amassed $14.8 million worth of shares. Harspring Capital Management, Voss Capital, and AltraVue Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Osmium Partners allocated the biggest weight to Rosetta Stone Inc (NYSE:RST), around 47.83% of its 13F portfolio. Voss Capital is also relatively very bullish on the stock, dishing out 16.06 percent of its 13F equity portfolio to RST.

As one would reasonably expect, key hedge funds have been driving this bullishness. Engine Capital, managed by Arnaud Ajdler, initiated the most valuable position in Rosetta Stone Inc (NYSE:RST). Engine Capital had $1.9 million invested in the company at the end of the quarter. Jim Roumell’s Roumell Asset Management also made a $1.8 million investment in the stock during the quarter. The other funds with brand new RST positions are Greg Eisner’s Engineers Gate Manager, Ken Griffin’s Citadel Investment Group, and Cliff Asness’s AQR Capital Management.

Let’s go over hedge fund activity in other stocks similar to Rosetta Stone Inc (NYSE:RST). We will take a look at Utah Medical Products, Inc. (NASDAQ:UTMD), Tekla Life Sciences Investors (NYSE:HQL), Realogy Holdings Corp (NYSE:RLGY), and International Money Express, Inc. (NASDAQ:IMXI). All of these stocks’ market caps are closest to RST’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UTMD 6 32769 0
HQL 1 277 -2
RLGY 25 104699 -5
IMXI 9 66798 -5
Average 10.25 51136 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $96 million in RST’s case. Realogy Holdings Corp (NYSE:RLGY) is the most popular stock in this table. On the other hand Tekla Life Sciences Investors (NYSE:HQL) is the least popular one with only 1 bullish hedge fund positions. Rosetta Stone Inc (NYSE:RST) 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on RST, though not to the same extent, as the stock returned 20.3% during the second quarter and outperformed the market as well.

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