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Hedge Funds Never Loved Rosetta Stone Inc (RST) More

Asma UL Husna

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Rosetta Stone Inc (NYSE:RST).

Rosetta Stone Inc (NYSE:RST) was in 22 hedge funds' portfolios at the end of March. RST has seen an increase in hedge fund interest recently. There were 18 hedge funds in our database with RST positions at the end of the previous quarter. Our calculations also showed that RST 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.

If you'd ask most shareholders, hedge funds are assumed to be unimportant, outdated investment vehicles of years past. While there are greater than 8000 funds in operation at the moment, Our researchers choose to focus on the elite of this club, approximately 850 funds. It is estimated that this group of investors administer bulk of the hedge fund industry's total capital, and by shadowing their inimitable investments, Insider Monkey has brought to light many investment strategies that have historically outstripped the market. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

[caption id="attachment_733253" align="aligncenter" width="399"] Arnaud Ajdler of Engine Capital[/caption]

Arnaud Ajdler Engine Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a glance at the recent hedge fund action regarding Rosetta Stone Inc (NYSE:RST).

What have hedge funds been doing with Rosetta Stone Inc (NYSE:RST)?

At Q1's end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the fourth quarter of 2019. On the other hand, there were a total of 19 hedge funds with a bullish position in RST 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.

More specifically, Renaissance Technologies was the largest shareholder of Rosetta Stone Inc (NYSE:RST), with a stake worth $21.9 million reported as of the end of September. Trailing Renaissance Technologies was Osmium Partners, which amassed a stake valued at $14.8 million. Harspring Capital Management, Voss Capital, and AltraVue Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Osmium Partners allocated the biggest weight to Rosetta Stone Inc (NYSE:RST), around 47.83% of its 13F portfolio. Voss Capital is also relatively very bullish on the stock, setting aside 16.06 percent of its 13F equity portfolio to RST.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Engine Capital, managed by Arnaud Ajdler, created the most outsized position in Rosetta Stone Inc (NYSE:RST). Engine Capital had $1.9 million invested in the company at the end of the quarter. Jim Roumell's Roumell Asset Management also made a $1.8 million investment in the stock during the quarter. The other funds with brand new RST positions are Greg Eisner's Engineers Gate Manager, Ken Griffin's Citadel Investment Group, and Cliff Asness's AQR Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Rosetta Stone Inc (NYSE:RST) but similarly valued. These stocks are Utah Medical Products, Inc. (NASDAQ:UTMD), Tekla Life Sciences Investors (NYSE:HQL), Realogy Holdings Corp (NYSE:RLGY), and International Money Express, Inc. (NASDAQ:IMXI). This group of stocks' market caps match RST's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UTMD,6,32769,0 HQL,1,277,-2 RLGY,25,104699,-5 IMXI,9,66798,-5 Average,10.25,51136,-3 [/table]

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 $51 million. That figure was $96 million in RST's case. Realogy Holdings Corp (NYSE:RLGY) is the most popular stock in this table. On the other hand Tekla Life Sciences Investors (NYSE:HQL) is the least popular one with only 1 bullish hedge fund positions. Rosetta Stone Inc (NYSE:RST) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on RST as the stock returned 27.4% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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