"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. 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 Ranpak Holdings Corp (NYSE:PACK) and see how it was affected.
Ranpak Holdings Corp (NYSE:PACK) shareholders have witnessed a decrease in activity from the world's largest hedge funds lately. PACK was in 14 hedge funds' portfolios at the end of the third quarter of 2019. There were 16 hedge funds in our database with PACK positions at the end of the previous quarter. Our calculations also showed that PACK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
[caption id="attachment_792409" align="aligncenter" width="464"] Brad Gerstner of Altimeter Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a look at the new hedge fund action regarding Ranpak Holdings Corp (NYSE:PACK).
What does smart money think about Ranpak Holdings Corp (NYSE:PACK)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the second quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in PACK a year ago. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, JS Capital was the largest shareholder of Ranpak Holdings Corp (NYSE:PACK), with a stake worth $149 million reported as of the end of September. Trailing JS Capital was Ulysses Management, which amassed a stake valued at $6.4 million. Altimeter Capital Management, Corvex Capital, and Alyeska Investment Group 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 JS Capital allocated the biggest weight to Ranpak Holdings Corp (NYSE:PACK), around 20.28% of its 13F portfolio. Discovery Capital Management is also relatively very bullish on the stock, dishing out 0.61 percent of its 13F equity portfolio to PACK.
Because Ranpak Holdings Corp (NYSE:PACK) has faced a decline in interest from the smart money, it's easy to see that there was a specific group of hedge funds who sold off their full holdings by the end of the third quarter. Intriguingly, Highbridge Capital Management sold off the largest stake of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $2.5 million in stock. Paul Glazer's fund, Glazer Capital, also sold off its stock, about $0.2 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to Ranpak Holdings Corp (NYSE:PACK). These stocks are Anworth Mortgage Asset Corporation (NYSE:ANH), XPEL Inc. (NASDAQ:XPEL), Computer Programs & Systems, Inc. (NASDAQ:CPSI), and Select Interior Concepts, Inc. (NASDAQ:SIC). All of these stocks' market caps resemble PACK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANH,14,30078,0 XPEL,2,17793,2 CPSI,12,18542,0 SIC,14,61557,5 Average,10.5,31993,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $179 million in PACK's case. Anworth Mortgage Asset Corporation (NYSE:ANH) is the most popular stock in this table. On the other hand XPEL Inc. (NASDAQ:XPEL) is the least popular one with only 2 bullish hedge fund positions. Ranpak Holdings Corp (NYSE:PACK) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PACK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PACK were disappointed as the stock returned 4.3% during the fourth quarter (through the end of November) 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.