We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Regal Beloit Corporation (NYSE:RBC).
Is Regal Beloit Corporation (NYSE:RBC) a bargain? Investors who are in the know are turning bullish. The number of bullish hedge fund positions moved up by 4 lately. Our calculations also showed that RBC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). RBC was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with RBC positions at the end of the previous quarter.
According to most traders, hedge funds are perceived as underperforming, outdated investment tools of yesteryear. While there are more than 8000 funds in operation at present, Our researchers choose to focus on the masters of this club, around 850 funds. It is estimated that this group of investors shepherd the majority of the hedge fund industry’s total capital, and by tailing their finest picks, Insider Monkey has uncovered a few investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Sander Gerber of Hudson Bay Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the new hedge fund action regarding Regal Beloit Corporation (NYSE:RBC).
How are hedge funds trading Regal Beloit Corporation (NYSE:RBC)?
At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in RBC a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Regal Beloit Corporation (NYSE:RBC) was held by AQR Capital Management, which reported holding $99.4 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $54.4 million position. Other investors bullish on the company included Arrowstreet Capital, Millennium Management, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to Regal Beloit Corporation (NYSE:RBC), around 0.6% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, setting aside 0.47 percent of its 13F equity portfolio to RBC.
Now, specific money managers were breaking ground themselves. Interval Partners, managed by Gregg Moskowitz, assembled the most valuable position in Regal Beloit Corporation (NYSE:RBC). Interval Partners had $9 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $2.4 million position during the quarter. The following funds were also among the new RBC investors: Sander Gerber’s Hudson Bay Capital Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Robert Vincent McHugh’s Jade Capital Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Regal Beloit Corporation (NYSE:RBC) but similarly valued. We will take a look at Pebblebrook Hotel Trust (NYSE:PEB), Semtech Corporation (NASDAQ:SMTC), TerraForm Power Inc (NASDAQ:TERP), and Strayer Education Inc (NASDAQ:STRA). This group of stocks’ market values resemble RBC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PEB | 22 | 215639 | 9 |
| SMTC | 12 | 199266 | -5 |
| TERP | 15 | 215703 | 2 |
| STRA | 13 | 273742 | -8 |
| Average | 15.5 | 226088 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $281 million in RBC’s case. Pebblebrook Hotel Trust (NYSE:PEB) is the most popular stock in this table. On the other hand Semtech Corporation (NASDAQ:SMTC) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Regal Beloit Corporation (NYSE:RBC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately RBC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RBC were disappointed as the stock returned -29.3% during the first two and a half months of 2020 (through March 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
