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RBC Bearings Incorporated (ROLL): Hedge Funds De-risking

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded RBC Bearings Incorporated (NASDAQ:ROLL) based on those filings.

RBC Bearings Incorporated (NASDAQ:ROLL) was in 9 hedge funds’ portfolios at the end of March. ROLL has experienced a decrease in activity from the world’s largest hedge funds of late. There were 10 hedge funds in our database with ROLL holdings at the end of the previous quarter. Our calculations also showed that ROLL 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).

Video: 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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 take a glance at the fresh hedge fund action regarding RBC Bearings Incorporated (NASDAQ:ROLL).

How are hedge funds trading RBC Bearings Incorporated (NASDAQ:ROLL)?

Heading into the second quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the fourth quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in ROLL a year ago. So, let’s check 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, Royce & Associates, managed by Chuck Royce, holds the biggest position in RBC Bearings Incorporated (NASDAQ:ROLL). Royce & Associates has a $21.3 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Millennium Management, led by Israel Englander, holding a $9.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions comprise Ken Griffin’s Citadel Investment Group, Paul Marshall and Ian Wace’s Marshall Wace LLP and Peter Muller’s PDT Partners. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to RBC Bearings Incorporated (NASDAQ:ROLL), around 0.29% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, setting aside 0.06 percent of its 13F equity portfolio to ROLL.

Since RBC Bearings Incorporated (NASDAQ:ROLL) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of money managers that elected to cut their positions entirely heading into Q4. At the top of the heap, Michael Gelband’s ExodusPoint Capital cut the biggest investment of the 750 funds monitored by Insider Monkey, totaling close to $0.6 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund cut about $0.6 million worth. These moves are important to note, as total hedge fund interest dropped by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as RBC Bearings Incorporated (NASDAQ:ROLL) but similarly valued. We will take a look at Physicians Realty Trust (NYSE:DOC), Nextera Energy Partners LP (NYSE:NEP), Agree Realty Corporation (NYSE:ADC), and Brunswick Corporation (NYSE:BC). All of these stocks’ market caps match ROLL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DOC 16 133862 5
NEP 21 96521 4
ADC 21 310469 3
BC 23 411459 -13
Average 20.25 238078 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $238 million. That figure was $40 million in ROLL’s case. Brunswick Corporation (NYSE:BC) is the most popular stock in this table. On the other hand Physicians Realty Trust (NYSE:DOC) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks RBC Bearings Incorporated (NASDAQ:ROLL) is even less popular than DOC. 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 13.4% in 2020 through June 22nd but managed to beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on ROLL, though not to the same extent, as the stock returned 22.4% during the second quarter (through June 22nd) and outperformed the market as well.

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