RR Donnelley & Sons Company (RRD) Fell Out Of Favor With Hedge Funds

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is RR Donnelley & Sons Company (NASDAQ:RRD), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

RR Donnelley & Sons Company (NASDAQ:RRD) has seen a decrease in activity from the world’s largest hedge funds recently. RR Donnelley & Sons Company (NASDAQ:RRD) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 27. There were 13 hedge funds in our database with RRD positions at the end of the second quarter. Our calculations also showed that RRD isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 66 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 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.

Andy Redleaf Andrew Redleaf Whitebox Advisors

Andy Redleaf of Whitebox Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a look at the latest hedge fund action surrounding RR Donnelley & Sons Company (NASDAQ:RRD).

How have hedgies been trading RR Donnelley & Sons Company (NASDAQ:RRD)?

At the end of September, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -38% from the second quarter of 2020. By comparison, 15 hedge funds held shares or bullish call options in RRD a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is RRD A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Saba Capital, managed by Boaz Weinstein, holds the most valuable position in RR Donnelley & Sons Company (NASDAQ:RRD). Saba Capital has a $10.3 million position in the stock, comprising 0.4% of its 13F portfolio. Sitting at the No. 2 spot is Andy Redleaf of Whitebox Advisors, with a $3.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions comprise Israel Englander’s Millennium Management, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Saba Capital allocated the biggest weight to RR Donnelley & Sons Company (NASDAQ:RRD), around 0.43% of its 13F portfolio. Whitebox Advisors is also relatively very bullish on the stock, dishing out 0.15 percent of its 13F equity portfolio to RRD.

Seeing as RR Donnelley & Sons Company (NASDAQ:RRD) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers that elected to cut their positions entirely in the third quarter. Interestingly, Cliff Asness’s AQR Capital Management dropped the biggest position of all the hedgies tracked by Insider Monkey, valued at about $1.1 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $0.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 5 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as RR Donnelley & Sons Company (NASDAQ:RRD) but similarly valued. These stocks are Qualigen Therapeutics, Inc. (NASDAQ:QLGN), Lizhi Inc. (NASDAQ:LIZI), The Goldfield Corporation (NYSE:GV), United Security Bancshares (NASDAQ:UBFO), Capricor Therapeutics, Inc. (NASDAQ:CAPR), HireQuest, Inc. (NASDAQ:HQI), and Maiden Holdings, Ltd. (NASDAQ:MHLD). This group of stocks’ market values are similar to RRD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QLGN 1 266 0
LIZI 2 133 1
GV 1 9051 0
UBFO 3 1563 0
CAPR 1 186 -3
HQI 1 90 -1
MHLD 6 11451 -1
Average 2.1 3249 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.1 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $16 million in RRD’s case. Maiden Holdings, Ltd. (NASDAQ:MHLD) is the most popular stock in this table. On the other hand Qualigen Therapeutics, Inc. (NASDAQ:QLGN) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks RR Donnelley & Sons Company (NASDAQ:RRD) is more popular among hedge funds. Our overall hedge fund sentiment score for RRD is 58.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Unfortunately RRD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RRD were disappointed as the stock returned -7.5% since the end of the third quarter (through 12/2) 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 most of these stocks already outperformed the market in 2020.

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