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Hedge Funds Cutting Exposure To Regional Management Corp (RM)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtRegional Management Corp (NYSE:RM) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Regional Management Corp (NYSE:RM) a buy here? Money managers were getting less optimistic. The number of long hedge fund positions dropped by 1 in recent months. Our calculations also showed that RM 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). RM was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. There were 12 hedge funds in our database with RM positions at the end of the previous quarter.

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

At the moment there are tons of formulas investors use to appraise their stock investments. A pair of the most underrated formulas are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the elite investment managers can outpace their index-focused peers by a solid amount (see the details here).

Matthew Lindenbaum Basswood Capital

Matthew Lindenbaum of Basswood Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. Now let’s review the new hedge fund action regarding Regional Management Corp (NYSE:RM).

What have hedge funds been doing with Regional Management Corp (NYSE:RM)?

Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in RM over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Matthew Lindenbaum’s Basswood Capital has the largest position in Regional Management Corp (NYSE:RM), worth close to $19.2 million, amounting to 2.2% of its total 13F portfolio. On Basswood Capital’s heels is Renaissance Technologies, which holds a $7.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions encompass C. Jonathan Gattman’s Cloverdale Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Cloverdale Capital Management allocated the biggest weight to Regional Management Corp (NYSE:RM), around 5.4% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, earmarking 2.24 percent of its 13F equity portfolio to RM.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ExodusPoint Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified RM as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Regional Management Corp (NYSE:RM) but similarly valued. These stocks are The Joint Corp. (NASDAQ:JYNT), Washington Prime Group Inc. (NYSE:WPG), Willis Lease Finance Corporation (NASDAQ:WLFC), and Codorus Valley Bancorp, Inc. (NASDAQ:CVLY). This group of stocks’ market values match RM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JYNT 15 43985 0
WPG 9 2080 0
WLFC 4 12461 -4
CVLY 4 9861 -1
Average 8 17097 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $17 million. That figure was $42 million in RM’s case. The Joint Corp. (NASDAQ:JYNT) is the most popular stock in this table. On the other hand Willis Lease Finance Corporation (NASDAQ:WLFC) is the least popular one with only 4 bullish hedge fund positions. Regional Management Corp (NYSE:RM) 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on RM as the stock returned 29.6% in Q2 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.