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Hedge Funds Are Souring On RPM International Inc. (RPM)

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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 900 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 RPM International Inc. (NYSE:RPM), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

RPM International Inc. (NYSE:RPM) was in 20 hedge funds' portfolios at the end of March. The all time high for this statistic is 34. RPM has experienced a decrease in hedge fund interest in recent months. There were 25 hedge funds in our database with RPM positions at the end of the fourth quarter. Our calculations also showed that RPM isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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.

Bruce Kovner, Caxton Associates LP
Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind we're going to analyze the new hedge fund action regarding RPM International Inc. (NYSE:RPM).

Do Hedge Funds Think RPM Is A Good Stock To Buy Now?

At the end of March, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RPM over the last 23 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in RPM International Inc. (NYSE:RPM) was held by Marshall Wace LLP, which reported holding $13.2 million worth of stock at the end of December. It was followed by Arrowstreet Capital with a $13.1 million position. Other investors bullish on the company included Bridgewater Associates, Holocene Advisors, and Cinctive Capital Management. In terms of the portfolio weights assigned to each position Cinctive Capital Management allocated the biggest weight to RPM International Inc. (NYSE:RPM), around 0.41% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, designating 0.2 percent of its 13F equity portfolio to RPM.

Seeing as RPM International Inc. (NYSE:RPM) has witnessed a decline in interest from the aggregate hedge fund industry, it's safe to say that there were a few funds who sold off their entire stakes heading into Q2. It's worth mentioning that Steve Cohen's Point72 Asset Management dumped the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $11.1 million in stock. Michael Cowley's fund, Sandbar Asset Management, also said goodbye to its stock, about $10.9 million worth. These transactions are interesting, as total hedge fund interest dropped by 5 funds heading into Q2.

Let's go over hedge fund activity in other stocks similar to RPM International Inc. (NYSE:RPM). We will take a look at Banco de Chile (NYSE:BCH), Sibanye Stillwater Limited (NYSE:SBSW), Host Hotels and Resorts Inc (NASDAQ:HST), Fidelity National Financial Inc (NYSE:FNF), Tuya Inc. (NYSE:TUYA), Zai Lab Limited (NASDAQ:ZLAB), and DaVita Inc (NYSE:DVA). This group of stocks' market valuations are similar to RPM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCH,5,53333,2 SBSW,16,272595,-1 HST,25,240687,3 FNF,39,1164238,-1 TUYA,15,231919,15 ZLAB,32,666075,2 DVA,34,4398979,2 Average,23.7,1003975,3.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.7 hedge funds with bullish positions and the average amount invested in these stocks was $1004 million. That figure was $80 million in RPM's case. Fidelity National Financial Inc (NYSE:FNF) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 5 bullish hedge fund positions. RPM International Inc. (NYSE:RPM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RPM is 39.7. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately RPM wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); RPM investors were disappointed as the stock returned -2.3% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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