The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Rent-A-Center Inc (NASDAQ:RCII) and determine whether the smart money was really smart about this stock.
Rent-A-Center Inc (NASDAQ:RCII) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds' portfolios at the end of the second quarter of 2020. Our calculations also showed that RCII isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as First Merchants Corporation (NASDAQ:FRME), Asbury Automotive Group, Inc. (NYSE:ABG), and Zogenix, Inc. (NASDAQ:ZGNX) to gather more data points. Our calculations also showed that RCII isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let's review the recent hedge fund action surrounding Rent-A-Center Inc (NASDAQ:RCII).
What does smart money think about Rent-A-Center Inc (NASDAQ:RCII)?
At the end of June, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RCII over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Engaged Capital held the most valuable stake in Rent-A-Center Inc (NASDAQ:RCII), which was worth $148.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $100.6 million worth of shares. Royce & Associates, Arrowstreet Capital, and D E Shaw 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 Engaged Capital allocated the biggest weight to Rent-A-Center Inc (NASDAQ:RCII), around 15.99% of its 13F portfolio. Gratia Capital is also relatively very bullish on the stock, setting aside 5.62 percent of its 13F equity portfolio to RCII.
Due to the fact that Rent-A-Center Inc (NASDAQ:RCII) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of fund managers that decided to sell off their full holdings by the end of the second quarter. It's worth mentioning that Anand Parekh's Alyeska Investment Group cut the largest position of the "upper crust" of funds tracked by Insider Monkey, worth about $2.4 million in stock, and Greg Eisner's Engineers Gate Manager was right behind this move, as the fund dumped about $1.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Rent-A-Center Inc (NASDAQ:RCII). These stocks are First Merchants Corporation (NASDAQ:FRME), Asbury Automotive Group, Inc. (NYSE:ABG), Zogenix, Inc. (NASDAQ:ZGNX), Luminex Corporation (NASDAQ:LMNX), Rush Enterprises, Inc. (NASDAQ:RUSHA), Cerence Inc. (NASDAQ:CRNC), and Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA). This group of stocks' market caps are similar to RCII's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FRME,11,63854,-1 ABG,24,314617,5 ZGNX,38,595643,2 LMNX,27,375386,12 RUSHA,18,59748,1 CRNC,14,148123,3 KNSA,18,294081,8 Average,21.4,264493,4.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $264 million. That figure was $350 million in RCII's case. Zogenix, Inc. (NASDAQ:ZGNX) is the most popular stock in this table. On the other hand First Merchants Corporation (NASDAQ:FRME) is the least popular one with only 11 bullish hedge fund positions. Rent-A-Center Inc (NASDAQ:RCII) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RCII is 39.5. 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 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately RCII wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RCII investors were disappointed as the stock returned 8.6% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.