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 (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Rollins, Inc. (NYSE:ROL).
Rollins, Inc. (NYSE:ROL) was in 34 hedge funds’ portfolios at the end of the fourth quarter of 2019. ROL has seen an increase in hedge fund interest in recent months. There were 29 hedge funds in our database with ROL positions at the end of the previous quarter. Our calculations also showed that ROL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
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. With all of this in mind let’s check out the key hedge fund action regarding Rollins, Inc. (NYSE:ROL).
How have hedgies been trading Rollins, Inc. (NYSE:ROL)?
At Q4’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in ROL a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, GAMCO Investors, managed by Mario Gabelli, holds the number one position in Rollins, Inc. (NYSE:ROL). GAMCO Investors has a $79.5 million position in the stock, comprising 0.6% of its 13F portfolio. The second largest stake is held by Citadel Investment Group, led by Ken Griffin, holding a $44.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism consist of Renaissance Technologies, Cliff Asness’s AQR Capital Management and Robert Joseph Caruso’s Select Equity Group. In terms of the portfolio weights assigned to each position Bishop Rock Capital allocated the biggest weight to Rollins, Inc. (NYSE:ROL), around 4.02% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, earmarking 0.77 percent of its 13F equity portfolio to ROL.
Consequently, key hedge funds have jumped into Rollins, Inc. (NYSE:ROL) headfirst. Renaissance Technologies, assembled the most outsized position in Rollins, Inc. (NYSE:ROL). Renaissance Technologies had $38.5 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also initiated a $7.4 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, Matthew Tewksbury’s Stevens Capital Management, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Rollins, Inc. (NYSE:ROL) but similarly valued. We will take a look at Fair Isaac Corporation (NYSE:FICO), Aramark (NYSE:ARMK), PerkinElmer, Inc. (NYSE:PKI), and Eastman Chemical Company (NYSE:EMN). This group of stocks’ market caps are similar to ROL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FICO | 45 | 1456753 | 1 |
| ARMK | 36 | 2127604 | 1 |
| PKI | 20 | 841222 | -5 |
| EMN | 32 | 493987 | 2 |
| Average | 33.25 | 1229892 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $1230 million. That figure was $364 million in ROL’s case. Fair Isaac Corporation (NYSE:FICO) is the most popular stock in this table. On the other hand PerkinElmer, Inc. (NYSE:PKI) is the least popular one with only 20 bullish hedge fund positions. Rollins, Inc. (NYSE:ROL) is not the most popular stock in this group but hedge fund interest is still above average. 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on ROL as the stock returned 8.1% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
