The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Resources Connection, Inc. (NASDAQ:RECN) and find out how it is affected by hedge funds' moves.
Is Resources Connection, Inc. (NASDAQ:RECN) the right investment to pursue these days? The smart money is taking a pessimistic view. The number of bullish hedge fund bets fell by 1 lately. Our calculations also showed that RECN isn't among the 30 most popular stocks among hedge funds (see the video below). RECN was in 13 hedge funds' portfolios at the end of June. There were 14 hedge funds in our database with RECN positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
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. We're going to take a glance at the recent hedge fund action encompassing Resources Connection, Inc. (NASDAQ:RECN).
What does smart money think about Resources Connection, Inc. (NASDAQ:RECN)?
At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in RECN over the last 16 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of Resources Connection, Inc. (NASDAQ:RECN), with a stake worth $26.1 million reported as of the end of March. Trailing Royce & Associates was Arrowstreet Capital, which amassed a stake valued at $5 million. Fisher Asset Management, Renaissance Technologies, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Resources Connection, Inc. (NASDAQ:RECN) has faced falling interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few hedgies who sold off their positions entirely in the second quarter. It's worth mentioning that Israel Englander's Millennium Management cut the largest position of the 750 funds followed by Insider Monkey, totaling close to $1.5 million in stock, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital was right behind this move, as the fund dumped about $0 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds in the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Resources Connection, Inc. (NASDAQ:RECN) but similarly valued. We will take a look at GlycoMimetics, Inc. (NASDAQ:GLYC), The Bancorp, Inc. (NASDAQ:TBBK), Gores Metropoulos, Inc. (NASDAQ:GMHI), and CytomX Therapeutics, Inc. (NASDAQ:CTMX). This group of stocks' market caps are closest to RECN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLYC,9,46257,1 TBBK,17,80825,1 GMHI,20,163482,2 CTMX,15,92893,-3 Average,15.25,95864,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $40 million in RECN's case. Gores Metropoulos, Inc. (NASDAQ:GMHI) is the most popular stock in this table. On the other hand GlycoMimetics, Inc. (NASDAQ:GLYC) is the least popular one with only 9 bullish hedge fund positions. Resources Connection, Inc. (NASDAQ:RECN) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on RECN as the stock returned 7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.