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 over the past few 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 hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards Ryder System, Inc. (NYSE:R).
Ryder System, Inc. (NYSE:R) investors should be aware of an increase in support from the world’s most elite money managers recently. R was in 23 hedge funds’ portfolios at the end of September. There were 17 hedge funds in our database with R holdings at the end of the previous quarter. Our calculations also showed that R isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We’re going to take a look at the recent hedge fund action regarding Ryder System, Inc. (NYSE:R).
How are hedge funds trading Ryder System, Inc. (NYSE:R)?
Heading into the fourth quarter of 2018, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 35% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in R over the last 13 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ryder System, Inc. (NYSE:R) was held by Pzena Investment Management, which reported holding $161.3 million worth of stock at the end of September. It was followed by AQR Capital Management with a $88 million position. Other investors bullish on the company included Luminus Management, Two Sigma Advisors, and SG Capital Management.
As aggregate interest increased, some big names were breaking ground themselves. SG Capital Management, managed by Ken Grossman and Glen Schneider, initiated the largest position in Ryder System, Inc. (NYSE:R). SG Capital Management had $15.8 million invested in the company at the end of the quarter. Gregg Moskowitz’s Interval Partners also initiated a $7.3 million position during the quarter. The following funds were also among the new R investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Matthew Tewksbury’s Stevens Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s also examine hedge fund activity in other stocks similar to Ryder System, Inc. (NYSE:R). These stocks are Southwest Gas Holdings, Inc. (NYSE:SWX), Taro Pharmaceutical Industries Ltd. (NYSE:TARO), Plains GP Holdings LP (NYSE:PAGP), and BGC Partners, Inc. (NASDAQ:BGCP). This group of stocks’ market valuations resemble R’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SWX | 13 | 177582 | 0 |
| TARO | 14 | 70986 | 5 |
| PAGP | 23 | 407954 | -1 |
| BGCP | 27 | 477154 | 3 |
| Average | 19.25 | 283419 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $283 million. That figure was $383 million in R’s case. BGC Partners, Inc. (NASDAQ:BGCP) is the most popular stock in this table. On the other hand Southwest Gas Corporation (NYSE:SWX) is the least popular one with only 13 bullish hedge fund positions. Ryder System, Inc. (NYSE:R) 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. In this regard BGCP might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
