Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of RR Donnelley & Sons Company (NASDAQ:RRD) based on that data and determine whether they were really smart about the stock.
Is RR Donnelley & Sons Company (NASDAQ:RRD) a worthy investment now? The smart money was becoming less hopeful. The number of bullish hedge fund bets shrunk by 1 recently. Our calculations also showed that RRD 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). RRD was in 10 hedge funds' portfolios at the end of March. There were 11 hedge funds in our database with RRD holdings at the end of the previous quarter. Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_193011" align="aligncenter" width="400"] Ron Gutfleish of Elm Ridge Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a look at the recent hedge fund action regarding RR Donnelley & Sons Company (NASDAQ:RRD).
Hedge fund activity in RR Donnelley & Sons Company (NASDAQ:RRD)
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in RRD 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.
The largest stake in RR Donnelley & Sons Company (NASDAQ:RRD) was held by Saba Capital, which reported holding $4.5 million worth of stock at the end of September. It was followed by Whitebox Advisors with a $2.3 million position. Other investors bullish on the company included Brigade Capital, AQR Capital Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Saba Capital allocated the biggest weight to RR Donnelley & Sons Company (NASDAQ:RRD), around 0.24% of its 13F portfolio. Whitebox Advisors is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to RRD.
Judging by the fact that RR Donnelley & Sons Company (NASDAQ:RRD) has faced falling interest from hedge fund managers, it's easy to see that there is a sect of money managers who sold off their full holdings last quarter. At the top of the heap, Ron Gutfleish's Elm Ridge Capital cut the largest stake of the 750 funds watched by Insider Monkey, worth about $0.8 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also cut its stock, about $0.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as RR Donnelley & Sons Company (NASDAQ:RRD) but similarly valued. These stocks are Acme United Corporation (NYSE:ACU), Envela Corporation (NYSE:ELA), Centric Brands Inc. (NASDAQ:CTRC), and Ocwen Financial Corporation (NYSE:OCN). This group of stocks' market caps match RRD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACU,2,6194,0 ELA,2,846,1 CTRC,2,36,0 OCN,11,11165,0 Average,4.25,4560,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $10 million in RRD's case. Ocwen Financial Corporation (NYSE:OCN) is the most popular stock in this table. On the other hand Acme United Corporation (NYSE:ACU) is the least popular one with only 2 bullish hedge fund positions. RR Donnelley & Sons Company (NASDAQ:RRD) 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on RRD, though not to the same extent, as the stock returned 24% during the second quarter and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.