Hedge Funds Are Buying RPM International Inc. (RPM)

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 second 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 5 years and analyze what the smart money thinks of RPM International Inc. (NYSE:RPM) based on that data and determine whether they were really smart about the stock.

RPM International Inc. (NYSE:RPM) was in 26 hedge funds’ portfolios at the end of June. The all time high for this statistics is 34. RPM has experienced an increase in activity from the world’s largest hedge funds recently. There were 22 hedge funds in our database with RPM holdings at the end of March. Our calculations also showed that RPM isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.


Richard Chilton of Chilton Investment Company

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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s review the fresh hedge fund action regarding RPM International Inc. (NYSE:RPM).

What have hedge funds been doing with RPM International Inc. (NYSE:RPM)?

At the end of June, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RPM over the last 20 quarters. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in RPM International Inc. (NYSE:RPM) was held by Hound Partners, which reported holding $34 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $23.9 million position. Other investors bullish on the company included SAYA Management, Chilton Investment Company, and Winton Capital Management. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to RPM International Inc. (NYSE:RPM), around 7.16% of its 13F portfolio. Hound Partners is also relatively very bullish on the stock, earmarking 3.07 percent of its 13F equity portfolio to RPM.

Now, specific money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, established the largest position in RPM International Inc. (NYSE:RPM). Millennium Management had $4.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.5 million position during the quarter. The other funds with brand new RPM positions are Donald Sussman’s Paloma Partners, Schonfeld Strategic Advisors, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as RPM International Inc. (NYSE:RPM) but similarly valued. These stocks are The Carlyle Group Inc. (NASDAQ:CG), Magellan Midstream Partners, L.P. (NYSE:MMP), ASE Technology Holding Co., Ltd. (NYSE:ASX), DENTSPLY SIRONA Inc. (NASDAQ:XRAY), Loews Corporation (NYSE:L), DaVita Inc (NYSE:DVA), and The AES Corporation (NYSE:AES). All of these stocks’ market caps are similar to RPM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CG 8 171536 -8
MMP 15 59070 2
ASX 11 167226 2
XRAY 28 1023314 -2
L 28 153092 7
DVA 35 3678190 -8
AES 31 564378 0
Average 22.3 830972 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $831 million. That figure was $109 million in RPM’s case. DaVita Inc (NYSE:DVA) is the most popular stock in this table. On the other hand The Carlyle Group Inc. (NASDAQ:CG) is the least popular one with only 8 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 overall hedge fund sentiment score for RPM is 65.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on RPM as the stock returned 8.6% during Q3 (through September 25th) 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.