Hedge Funds Are Dipping Their Toes Into Rambus Inc. (RMBS)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Rambus Inc. (NASDAQ:RMBS) and determine whether hedge funds skillfully traded this stock.

Rambus Inc. (NASDAQ:RMBS) has seen an increase in hedge fund interest of late. Rambus Inc. (NASDAQ:RMBS) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. Our calculations also showed that RMBS 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.

To most shareholders, hedge funds are assumed to be slow, outdated financial tools of the past. While there are over 8000 funds in operation at present, Our researchers choose to focus on the moguls of this group, about 850 funds. These investment experts manage the majority of all hedge funds’ total asset base, and by keeping an eye on their finest equity investments, Insider Monkey has brought to light a number of investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Ian Wace Marshall Wace

Ian Wace of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. Keeping this in mind let’s take a glance at the new hedge fund action encompassing Rambus Inc. (NASDAQ:RMBS).

What have hedge funds been doing with Rambus Inc. (NASDAQ:RMBS)?

Heading into the third quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in RMBS a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the biggest position in Rambus Inc. (NASDAQ:RMBS). Renaissance Technologies has a $62.3 million position in the stock, comprising 0.1% of its 13F portfolio. On Renaissance Technologies’s heels is D. E. Shaw of D E Shaw, with a $23.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that are bullish comprise Cynthia Paul’s Lynrock Lake, Israel Englander’s Millennium Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Lynrock Lake allocated the biggest weight to Rambus Inc. (NASDAQ:RMBS), around 1.15% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, setting aside 0.37 percent of its 13F equity portfolio to RMBS.

Consequently, some big names were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the biggest position in Rambus Inc. (NASDAQ:RMBS). Marshall Wace LLP had $1.5 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.9 million investment in the stock during the quarter. The following funds were also among the new RMBS investors: Hoon Kim’s Quantinno Capital, Ray Dalio’s Bridgewater Associates, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Rambus Inc. (NASDAQ:RMBS) but similarly valued. These stocks are Liberty Latin America Ltd. (NASDAQ:LILAK), Fitbit Inc (NYSE:FIT), Moelis & Company (NYSE:MC), Insight Enterprises, Inc. (NASDAQ:NSIT), Hecla Mining Company (NYSE:HL), Y-mAbs Therapeutics, Inc. (NASDAQ:YMAB), and Four Corners Property Trust, Inc. (NYSE:FCPT). This group of stocks’ market valuations match RMBS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LILAK 27 251802 2
FIT 30 350584 4
MC 8 48802 -2
NSIT 20 72128 7
HL 13 42245 -2
YMAB 13 148275 2
FCPT 19 69779 5
Average 18.6 140516 2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.6 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $147 million in RMBS’s case. Fitbit Inc (NYSE:FIT) is the most popular stock in this table. On the other hand Moelis & Company (NYSE:MC) is the least popular one with only 8 bullish hedge fund positions. Rambus Inc. (NASDAQ:RMBS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RMBS is 55.2. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately RMBS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RMBS investors were disappointed as the stock returned -9.9% in the third 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 in 2020.

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