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RGM Capital’s Top Stock Picks

Sieni Kimalainen

RGM Capital was founded in 2003 by Robert Moses, who started the fund after gaining some experience working at McDonalds & Company as a sell-side research analyst and Private Capital Management as a portfolio manager and managing director. Moses’ strategy differs from many other hedge funds – he doesn’t usually use idea-sharing networks and Wall-Street research, thus avoiding main stream scheme. RGM Capital is a value hedge fund which focuses on identifying undervalued high-quality small-cap companies that are trading at 50% of their “true” value.

During the last several years, the fund proved to have chosen its strategy well, since it has been returning positively during the several last years, showing the highest return of 28.22% in 2013. RGM Capital’s Value Opportunity Fund also returned 6.1% in 2014, 2.6% in 2015, 10.3% in 2016, 13.1% in 2017, 2.8% in 2018, and 16.8% during the first half of 2019. The fund has been executing its mission in a right way, having an annualized return of 10.7% after their hefty hedge fund fees and expenses since its inception in 2003.

[caption id="attachment_769366" align="aligncenter" width="473"] Robert G. Moses of RGM Capital[/caption]

Robert Moses RGM Capital

Insider Monkey’s mission is to identify promising (and also terrible) hedge fund stock pitches and share them with our subscribers. Our long strategy is based on the consensus picks of the 100 best performing hedge funds. This strategy was launched 5 years ago and generated a cumulative return of 115%. You can think of it as a mutual fund that returned 16.2% annually over the last 5 years, vs. 11.1% annual gain for the S&P 500 ETF (SPY). Basically we outperform the S&P 500 Index by 5 percentage points annually by identifying the top stock picks of the best hedge fund managers (see the details here).

Our short strategy is based on shorting hedge fund hotels that are likely to experience large hedge fund sales during market weaknesses. We launched this strategy in February 2017. It's been almost 2.5 years and the stock picks of this strategy lost a cumulative 24.7% vs. a cumulative gain of 30.8% for the S&P 500 ETF. This is an absolutely mind blowing performance. The annualized return of our short picks is -11.2%, vs. 11.8% annualized gain for the S&P 500 Index during the same period. The annual alpha of this strategy is 23 percentage points. Jim Chanos doesn't generate this kind of performance. The best thing about this short strategy is that it provides an excellent hedge during market meltdowns. For example, in Q4 of 2018 when the S&P 500 Index lost nearly 14%, this strategy's picks lost 25% protecting our premium subscribers from large losses.

Our newsletters are successful because we follow hedge fund managers like Robert Moses to identify the best and worst hedge fund stock picks. In this article we are going to take a look at RGM Capital’s top stock picks for Q2 2019.

The fifth largest stock position in RGM Capital’s latest 13F filing was Cornerstone Nuance Communications Inc. (NASDAQ:NUAN), coming from the sixth position in the fund’s portfolio, after Robert Moses decided to boost the stock by 19%. RGM Capital Management was also the company’s top shareholder, holding a stake worth $96.1 million, comprising 6.9% of the fund’s portfolio. Hedge funds seem to be increasingly interested in the company since a total of 56 hedge funds were bullish on the stock, which is almost a double figure compared to the previous quarter. The company’s second largest shareholder for Q2 2019 was Glenview Capital, followed by Park West Asset Management, Lynrock Lake and AQR Capital Management. The fourth most valuable position in Q2 2019 was Tyler Technologies Inc  (NYSE:TYL), a public sector software company. Robert Moses decided to boost by 3%, which brought it from the seventh place in the fund’s portfolio. At the end of the second quarter 2019, a total of 24 hedge funds were tracked by Insider Monkey long this stock, which is about 22% less than at the end of  Q1 2019. Praesidium Investment Management Company held the most valuable stake in Tyler Technologies Inc, amounting $129.1 million at the end of the second quarter 2019. RGM Capital Management was the third largest shareholder, holding a stake worth $103.1 million. Two Creeks Capital Management, Citadel Investment Group, and Stockbridge Partners were also among the company’s top shareholders in Q2 2019. Cornersone Ondemand Inc (NASDAQ:CSOD), a human capital management software company, was the funds third top stock pick for Q2 2019. Robert Moses decided to boost the position by 6%, which brought it from the fifth place in the fund’s portfolio since the previous quarter. A total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. The largest stake in Cornerstone OnDemand, Inc. (NASDAQ:CSOD) was held by Praesidium Investment Management Company, which reported holding $187.7 million worth of stock at the end of June. It was followed by RGM Capital with a $109.1 million position. Other investors bullish on the company included Citadel Investment Group, Tensile Capital, and GLG Partners. The second most valuable position in RGM Capital’s latest 13F filing was Verint Systems Inc (NASDAQ:VRNT). The fund cut the position by 9%, which brought it from the top of the fund’s portfolio. RGM Capital was once again the largest shareholder of the company, holding 2,161,657 shares worth $116.2 million. In addition to this fund, 22 other hedge funds tracked by Insider Monkey held the company in their portfolios, which is an increase of 1 hedge fund compared to the previous quarter. Following RGM Capital, the second largest shareholder was Fisher Asset Management, amassing a stake worth $102.5 million. Other top shareholders were SQN Investors, Jericho Capital Asset Management, and GLG Partners. The most valuable position at the end of Q2 2019 was Manhattan Associates (NASDAQ:MANH). Despite the fund cut the position by 9%, it rose from the third place in the fund’s portfolio.  A total of 17 hedge funds were investing in the company at the end of the second quarter of this year, which is 1 fund less compared to the previous period. Of all the investors, RGM Capital held the most valuable stake in the company, worth $127.6 million, comprising 9.2% of the fund’s portfolio. The other funds still interested in the company were AQR Capital Management, Royce & Associates, Arrowstreet Capital, and GLG Partners. Disclosure: None.