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Hedge Funds Are Selling Ready Capital Corporation (RC)

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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Ready Capital Corporation (NYSE:RC).

Is Ready Capital Corporation (NYSE:RC) ready to rally soon? The smart money is in a bearish mood. The number of long hedge fund bets fell by 2 in recent months. Our calculations also showed that RC 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). RC was in 9 hedge funds’ portfolios at the end of March. There were 11 hedge funds in our database with RC positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

David Harding

David Harding of Winton Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the new hedge fund action regarding Ready Capital Corporation (NYSE:RC).

What does smart money think about Ready Capital Corporation (NYSE:RC)?

Heading into the second quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the fourth quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in RC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Ready Capital Corporation (NYSE:RC) was held by Farallon Capital, which reported holding $9.2 million worth of stock at the end of September. It was followed by Ellington with a $2.6 million position. Other investors bullish on the company included Winton Capital Management, Millennium Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Ellington allocated the biggest weight to Ready Capital Corporation (NYSE:RC), around 0.6% of its 13F portfolio. Farallon Capital is also relatively very bullish on the stock, setting aside 0.08 percent of its 13F equity portfolio to RC.

Because Ready Capital Corporation (NYSE:RC) has witnessed falling interest from the aggregate hedge fund industry, we can see that there is a sect of money managers that slashed their entire stakes in the first quarter. Interestingly, Benjamin A. Smith’s Laurion Capital Management cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth about $1 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $0.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 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 Ready Capital Corporation (NYSE:RC) but similarly valued. These stocks are Digital Turbine Inc (NASDAQ:APPS), America’s Car-Mart, Inc. (NASDAQ:CRMT), Puxin Limited (NYSE:NEW), and Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS). This group of stocks’ market valuations resemble RC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APPS 22 49594 2
CRMT 10 30233 -11
NEW 8 5758 0
VLRS 9 33933 -2
Average 12.25 29880 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $16 million in RC’s case. Digital Turbine Inc (NASDAQ:APPS) is the most popular stock in this table. On the other hand Puxin Limited (NYSE:NEW) is the least popular one with only 8 bullish hedge fund positions. Ready Capital Corporation (NYSE:RC) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately RC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RC investors were disappointed as the stock returned 18% during the second 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.