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Hedge Funds Are Buying Ruth’s Hospitality Group, Inc. (RUTH)

Abigail Fisher

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Ruth's Hospitality Group, Inc. (NASDAQ:RUTH).

Ruth's Hospitality Group, Inc. (NASDAQ:RUTH) was in 16 hedge funds' portfolios at the end of the second quarter of 2019. RUTH has seen an increase in support from the world's most elite money managers lately. There were 15 hedge funds in our database with RUTH holdings at the end of the previous quarter. Our calculations also showed that RUTH 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.

5 Most Popular Stocks Among Hedge Funds

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' 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.

RUTH_oct2019

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 glance at the recent hedge fund action surrounding Ruth's Hospitality Group, Inc. (NASDAQ:RUTH).

What does smart money think about Ruth's Hospitality Group, Inc. (NASDAQ:RUTH)?

Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in RUTH a year ago. With hedgies' capital changing hands, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

GOTHAM ASSET MANAGEMENT

More specifically, Arrowstreet Capital was the largest shareholder of Ruth's Hospitality Group, Inc. (NASDAQ:RUTH), with a stake worth $13.2 million reported as of the end of March. Trailing Arrowstreet Capital was AQR Capital Management, which amassed a stake valued at $9.7 million. GLG Partners, Renaissance Technologies, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the biggest position in Ruth's Hospitality Group, Inc. (NASDAQ:RUTH). Marshall Wace LLP had $2.6 million invested in the company at the end of the quarter. Richard Driehaus's Driehaus Capital also made a $0.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp and Joel Greenblatt's Gotham Asset Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Ruth's Hospitality Group, Inc. (NASDAQ:RUTH) but similarly valued. These stocks are Global Partners LP (NYSE:GLP), Urstadt Biddle Properties Inc. (NYSE:UBP), Houghton Mifflin Harcourt Co (NASDAQ:HMHC), and Mobileiron Inc (NASDAQ:MOBL). This group of stocks' market caps resemble RUTH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLP,3,1644,-2 UBP,2,12600,0 HMHC,14,201951,-11 MOBL,17,119966,0 Average,9,84040,-3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $84 million. That figure was $55 million in RUTH's case. Mobileiron Inc (NASDAQ:MOBL) is the most popular stock in this table. On the other hand Urstadt Biddle Properties Inc. (NYSE:UBP) is the least popular one with only 2 bullish hedge fund positions. Ruth's Hospitality Group, Inc. (NASDAQ:RUTH) 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 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 RUTH wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RUTH were disappointed as the stock returned -9.5% 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 this year.

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

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