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Did Hedge Funds Make The Right Call On RPM International Inc. (RPM) ?

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 RPM International Inc. (NYSE:RPM) at the end of the first quarter and determine whether the smart money was really smart about this stock.

RPM International Inc. (NYSE:RPM) shareholders have witnessed a decrease in hedge fund sentiment in recent months. Our calculations also showed that RPM 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.

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Now let’s check out the recent hedge fund action encompassing RPM International Inc. (NYSE:RPM).

How have hedgies been trading RPM International Inc. (NYSE:RPM)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in RPM a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Hound Partners held the most valuable stake in RPM International Inc. (NYSE:RPM), which was worth $61.2 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $55.3 million worth of shares. Citadel Investment Group, SAYA Management, and Chilton Investment Company 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 Hound Partners allocated the biggest weight to RPM International Inc. (NYSE:RPM), around 5.71% of its 13F portfolio. SAYA Management is also relatively very bullish on the stock, earmarking 5.55 percent of its 13F equity portfolio to RPM.

Due to the fact that RPM International Inc. (NYSE:RPM) has experienced a decline in interest from the smart money, it’s easy to see that there was a specific group of funds that decided to sell off their positions entirely heading into Q4. It’s worth mentioning that Robert Pohly’s Samlyn Capital said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, worth an estimated $28.7 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $12.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 9 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to RPM International Inc. (NYSE:RPM). We will take a look at Host Hotels and Resorts Inc (NYSE:HST), Mylan Inc. (NASDAQ:MYL), InterContinental Hotels Group PLC (NYSE:IHG), and Brookfield Property Partners LP (NASDAQ:BPY). All of these stocks’ market caps are closest to RPM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HST 24 130445 -3
MYL 49 1469905 2
IHG 4 9968 -2
BPY 7 42640 -1
Average 21 413240 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $413 million. That figure was $191 million in RPM’s case. Mylan Inc. (NASDAQ:MYL) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 4 bullish hedge fund positions. RPM International Inc. (NYSE:RPM) 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 RPM as the stock returned 26.8% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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