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Did Hedge Funds Make The Right Call On Rush Enterprises, Inc. (RUSHA) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Rush Enterprises, Inc. (NASDAQ:RUSHA) and determine whether hedge funds had an edge regarding this stock.

Rush Enterprises, Inc. (NASDAQ:RUSHA) was in 17 hedge funds’ portfolios at the end of March. RUSHA shareholders have witnessed a decrease in support from the world’s most elite money managers of late. There were 24 hedge funds in our database with RUSHA positions at the end of the previous quarter. Our calculations also showed that RUSHA 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.

Izzy Englander of MILLENNIUM MANAGEMENT

Israel Englander of Millennium Management

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. With all of this in mind we’re going to take a look at the key hedge fund action regarding Rush Enterprises, Inc. (NASDAQ:RUSHA).

What does smart money think about Rush Enterprises, Inc. (NASDAQ:RUSHA)?

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 -29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RUSHA over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in Rush Enterprises, Inc. (NASDAQ:RUSHA) was held by Renaissance Technologies, which reported holding $14.5 million worth of stock at the end of September. It was followed by Millennium Management with a $5.2 million position. Other investors bullish on the company included Driehaus Capital, First Pacific Advisors LLC, and 12th Street Asset Management. In terms of the portfolio weights assigned to each position 12th Street Asset Management allocated the biggest weight to Rush Enterprises, Inc. (NASDAQ:RUSHA), around 0.91% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.82 percent of its 13F equity portfolio to RUSHA.

Due to the fact that Rush Enterprises, Inc. (NASDAQ:RUSHA) has witnessed declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of fund managers that decided to sell off their positions entirely in the first quarter. Interestingly, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors dumped the largest position of all the hedgies tracked by Insider Monkey, worth about $3.5 million in stock, and Phil Frohlich’s Prescott Group Capital Management was right behind this move, as the fund dumped about $3.3 million worth. These moves are interesting, as total hedge fund interest was cut by 7 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Rush Enterprises, Inc. (NASDAQ:RUSHA) but similarly valued. These stocks are Mobile Mini Inc (NASDAQ:MINI), SpringWorks Therapeutics, Inc. (NASDAQ:SWTX), CBIZ, Inc. (NYSE:CBZ), and iRobot Corporation (NASDAQ:IRBT). This group of stocks’ market caps are closest to RUSHA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MINI 18 58994 -6
SWTX 14 481453 3
CBZ 10 142017 -3
IRBT 19 38329 6
Average 15.25 180198 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $44 million in RUSHA’s case. iRobot Corporation (NASDAQ:IRBT) is the most popular stock in this table. On the other hand CBIZ, Inc. (NYSE:CBZ) is the least popular one with only 10 bullish hedge fund positions. Rush Enterprises, Inc. (NASDAQ:RUSHA) 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 RUSHA as the stock returned 54.3% since Q1 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.