There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Regal Beloit Corporation (NYSE:RBC).
Hedge fund interest in Regal Beloit Corporation (NYSE:RBC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Olin Corporation (NYSE:OLN), Wright Medical Group N.V. (NASDAQ:WMGI), and Silgan Holdings Inc. (NASDAQ:SLGN) to gather more data points. Our calculations also showed that RBC isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Let’s take a peek at the key hedge fund action encompassing Regal Beloit Corporation (NYSE:RBC).
How are hedge funds trading Regal Beloit Corporation (NYSE:RBC)?
At the end of the second quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RBC over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Regal Beloit Corporation (NYSE:RBC), which was worth $61.1 million at the end of the second quarter. On the second spot was Fisher Asset Management which amassed $51.1 million worth of shares. Moreover, Renaissance Technologies, Arrowstreet Capital, and Marshall Wace LLP were also bullish on Regal Beloit Corporation (NYSE:RBC), allocating a large percentage of their portfolios to this stock.
Since Regal Beloit Corporation (NYSE:RBC) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few fund managers that slashed their positions entirely heading into Q3. At the top of the heap, David Costen Haley’s HBK Investments said goodbye to the largest stake of the “upper crust” of funds monitored by Insider Monkey, comprising about $0.6 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund said goodbye to about $0.5 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Regal Beloit Corporation (NYSE:RBC). We will take a look at Olin Corporation (NYSE:OLN), Wright Medical Group N.V. (NASDAQ:WMGI), Silgan Holdings Inc. (NASDAQ:SLGN), and Two Harbors Investment Corp (NYSE:TWO). This group of stocks’ market caps are closest to RBC’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $394 million. That figure was $178 million in RBC’s case. Wright Medical Group N.V. (NASDAQ:WMGI) is the most popular stock in this table. On the other hand Two Harbors Investment Corp (NYSE:TWO) is the least popular one with only 13 bullish hedge fund positions. Regal Beloit Corporation (NYSE:RBC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 RBC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RBC investors were disappointed as the stock returned -10.5% 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.