The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 18.7% through May 30th, vs. a gain of 12.1% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Reliance Steel & Aluminum Co. (NYSE:RS), and what that likely means for the prospects of the company and its stock.
Is Reliance Steel & Aluminum Co. (NYSE:RS) the right investment to pursue these days? The smart money is taking a bullish view. The number of long hedge fund bets improved by 3 recently. Our calculations also showed that rs isn't among the 30 most popular stocks among hedge funds. RS was in 23 hedge funds' portfolios at the end of the first quarter of 2019. There were 20 hedge funds in our database with RS positions at the end of the previous quarter.
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 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 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.
Let's take a gander at the latest hedge fund action encompassing Reliance Steel & Aluminum Co. (NYSE:RS).
Hedge fund activity in Reliance Steel & Aluminum Co. (NYSE:RS)
At Q1's end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards RS over the last 15 quarters. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
The largest stake in Reliance Steel & Aluminum Co. (NYSE:RS) was held by Scopus Asset Management, which reported holding $75.9 million worth of stock at the end of March. It was followed by Royce & Associates with a $73.8 million position. Other investors bullish on the company included Luminus Management, AQR Capital Management, and Millennium Management.
Now, some big names have jumped into Reliance Steel & Aluminum Co. (NYSE:RS) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the biggest position in Reliance Steel & Aluminum Co. (NYSE:RS). Balyasny Asset Management had $3.5 million invested in the company at the end of the quarter. Sara Nainzadeh's Centenus Global Management also made a $1.4 million investment in the stock during the quarter. The other funds with new positions in the stock are David Harding's Winton Capital Management, Joel Greenblatt's Gotham Asset Management, and Mike Vranos's Ellington.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Reliance Steel & Aluminum Co. (NYSE:RS) but similarly valued. These stocks are SolarWinds Corporation (NYSE:SWI), Bruker Corporation (NASDAQ:BRKR), Texas Pacific Land Trust (NYSE:TPL), and CubeSmart (NYSE:CUBE). This group of stocks' market caps are closest to RS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SWI,15,2759439,0 BRKR,25,400030,-1 TPL,11,1470997,-2 CUBE,20,393248,-2 Average,17.75,1255929,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $1256 million. That figure was $322 million in RS's case. Bruker Corporation (NASDAQ:BRKR) is the most popular stock in this table. On the other hand Texas Pacific Land Trust (NYSE:TPL) is the least popular one with only 11 bullish hedge fund positions. Reliance Steel & Aluminum Co. (NYSE:RS) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately RS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RS were disappointed as the stock returned -5.3% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.