Hedge Funds Are Warming Up To Regal Beloit Corporation (RBC)

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 Regal Beloit Corporation (NYSE:RBC) based on that data and determine whether they were really smart about the stock.

Regal Beloit Corporation (NYSE:RBC) has seen an increase in support from the world’s most elite money managers in recent months. Regal Beloit Corporation (NYSE:RBC) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 24. There were 19 hedge funds in our database with RBC holdings at the end of March. Our calculations also showed that RBC 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.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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 we’re going to check out the key hedge fund action encompassing Regal Beloit Corporation (NYSE:RBC).

How have hedgies been trading Regal Beloit Corporation (NYSE:RBC)?

Heading into the third quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in RBC over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, AQR Capital Management was the largest shareholder of Regal Beloit Corporation (NYSE:RBC), with a stake worth $76.5 million reported as of the end of September. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $65.5 million. Fisher Asset Management, Arrowstreet Capital, and Balyasny Asset Management 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 Prospector Partners allocated the biggest weight to Regal Beloit Corporation (NYSE:RBC), around 0.77% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.33 percent of its 13F equity portfolio to RBC.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Millennium Management, managed by Israel Englander, created the most valuable position in Regal Beloit Corporation (NYSE:RBC). Millennium Management had $6.7 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $5.1 million investment in the stock during the quarter. The following funds were also among the new RBC investors: Michael Gelband’s ExodusPoint Capital, Benjamin A. Smith’s Laurion Capital Management, and Minhua Zhang’s Weld Capital Management.

Let’s go over hedge fund activity in other stocks similar to Regal Beloit Corporation (NYSE:RBC). We will take a look at Power Integrations Inc (NASDAQ:POWI), Madison Square Garden Sports Corp. (NYSE:MSGS), Affiliated Managers Group, Inc. (NYSE:AMG), Blackstone Mortgage Trust Inc (NYSE:BXMT), Carter’s, Inc. (NYSE:CRI), Allakos Inc. (NASDAQ:ALLK), and Rexnord Corp (NYSE:RXN). This group of stocks’ market caps resemble RBC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
POWI 17 89358 -4
MSGS 43 965570 2
AMG 27 355173 0
BXMT 24 160654 5
CRI 33 268651 10
ALLK 14 311817 2
RXN 27 348031 8
Average 26.4 357036 3.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $357 million. That figure was $258 million in RBC’s case. Madison Square Garden Sports Corp. (NYSE:MSGS) is the most popular stock in this table. On the other hand Allakos Inc. (NASDAQ:ALLK) is the least popular one with only 14 bullish hedge fund positions. Regal Beloit Corporation (NYSE:RBC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RBC is 49.3. 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. 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 RBC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RBC investors were disappointed as the stock returned 7.8% 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.