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Is Rosetta Stone Inc (RST) Going To Burn These Hedge Funds ?

The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Rosetta Stone Inc (NYSE:RST) and find out how it is affected by hedge funds’ moves.

Rosetta Stone Inc (NYSE:RST) was in 12 hedge funds’ portfolios at the end of June. RST has seen a decrease in activity from the world’s largest hedge funds recently. There were 19 hedge funds in our database with RST holdings at the end of the previous quarter. Our calculations also showed that RST isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

According to most investors, hedge funds are perceived as worthless, outdated investment vehicles of yesteryear. While there are more than 8000 funds with their doors open at present, Our experts choose to focus on the bigwigs of this group, around 750 funds. These money managers handle the lion’s share of the smart money’s total capital, and by keeping track of their best picks, Insider Monkey has discovered several investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

RST_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the key hedge fund action surrounding Rosetta Stone Inc (NYSE:RST).

What does smart money think about Rosetta Stone Inc (NYSE:RST)?

At Q2’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -37% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in RST over the last 16 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

John Overdeck of Two Sigma

The largest stake in Rosetta Stone Inc (NYSE:RST) was held by Renaissance Technologies, which reported holding $40.8 million worth of stock at the end of March. It was followed by Osmium Partners with a $29.9 million position. Other investors bullish on the company included Ariel Investments, G2 Investment Partners Management, and Two Sigma Advisors.

Seeing as Rosetta Stone Inc (NYSE:RST) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few funds that slashed their positions entirely in the second quarter. Interestingly, Israel Englander’s Millennium Management cut the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $7.4 million in stock. Cristan Blackman’s fund, Empirical Capital Partners, also cut its stock, about $3.4 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 7 funds in the second quarter.

Let’s check out hedge fund activity in other stocks similar to Rosetta Stone Inc (NYSE:RST). These stocks are Vishay Precision Group Inc (NYSE:VPG), New Gold Inc. (NYSE:NGD), AGM Group Holdings Inc. (NASDAQ:AGMH), and Re/Max Holdings Inc (NYSE:RMAX). This group of stocks’ market values resemble RST’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VPG 14 158668 3
NGD 13 62467 0
AGMH 1 210 1
RMAX 10 60021 4
Average 9.5 70342 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $111 million in RST’s case. Vishay Precision Group Inc (NYSE:VPG) is the most popular stock in this table. On the other hand AGM Group Holdings Inc. (NASDAQ:AGMH) is the least popular one with only 1 bullish hedge fund positions. Rosetta Stone Inc (NYSE:RST) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately RST wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RST were disappointed as the stock returned -24% during 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.

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