“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Regis Corporation (NYSE:RGS) and see how it was affected.
Regis Corporation (NYSE:RGS) was in 12 hedge funds’ portfolios at the end of the fourth quarter of 2018. RGS shareholders have witnessed a decrease in enthusiasm from smart money recently. There were 15 hedge funds in our database with RGS positions at the end of the previous quarter. Our calculations also showed that RGS 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 32 percentage points since May 2014 through March 12, 2019 (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 review the recent hedge fund action surrounding Regis Corporation (NYSE:RGS).
Hedge fund activity in Regis Corporation (NYSE:RGS)
At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the second quarter of 2018. By comparison, 13 hedge funds held shares or bullish call options in RGS 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.
More specifically, Birch Run Capital was the largest shareholder of Regis Corporation (NYSE:RGS), with a stake worth $180.6 million reported as of the end of December. Trailing Birch Run Capital was Renaissance Technologies, which amassed a stake valued at $32.7 million. D E Shaw, First Pacific Advisors LLC, and Diker Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Regis Corporation (NYSE:RGS) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedge funds who were dropping their entire stakes last quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, totaling about $6.6 million in stock. David Harding’s fund, Winton Capital Management, also sold off its stock, about $6.5 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 3 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Regis Corporation (NYSE:RGS). These stocks are Tekla Healthcare Investors (NYSE:HQH), United Financial Bancorp, Inc. (NASDAQ:UBNK), AngioDynamics, Inc. (NASDAQ:ANGO), and eHealth, Inc. (NASDAQ:EHTH). This group of stocks’ market valuations are similar to RGS’s market valuation.
|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 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $244 million in RGS’s case. eHealth, Inc. (NASDAQ:EHTH) is the most popular stock in this table. On the other hand Tekla Healthcare Investors (NYSE:HQH) is the least popular one with only 3 bullish hedge fund positions. Regis Corporation (NYSE:RGS) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately RGS wasn’t nearly as popular as these 15 stock and hedge funds that were betting on RGS were disappointed as the stock returned 13.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.