The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Richardson Electronics, Ltd. (NASDAQ:RELL) based on those filings.
Richardson Electronics, Ltd. (NASDAQ:RELL) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds' portfolios at the end of the first quarter of 2020. 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 JMP Group Inc. (NYSE:JMP), Southwest Georgia Financial Corporation (NYSE:SGB), and Nicholas Financial, Inc. (NASDAQ:NICK) to gather more data points. Our calculations also showed that RELL 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). Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 51 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26073" align="aligncenter" width="400"] Jim Simons of Renaissance Technologies[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to go over the latest hedge fund action regarding Richardson Electronics, Ltd. (NASDAQ:RELL).
Hedge fund activity in Richardson Electronics, Ltd. (NASDAQ:RELL)
At the end of the first quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RELL over the last 18 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Chuck Royce's Royce & Associates has the largest position in Richardson Electronics, Ltd. (NASDAQ:RELL), worth close to $3.9 million, amounting to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, which holds a $3.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism contain Dov Gertzulin's DG Capital Management, Frederick DiSanto's Ancora Advisors and . In terms of the portfolio weights assigned to each position DG Capital Management allocated the biggest weight to Richardson Electronics, Ltd. (NASDAQ:RELL), around 1.55% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.05 percent of its 13F equity portfolio to RELL.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Richardson Electronics, Ltd. (NASDAQ:RELL) but similarly valued. These stocks are JMP Group Inc. (NYSE:JMP), Southwest Georgia Financial Corporation (NYSE:SGB), Nicholas Financial, Inc. (NASDAQ:NICK), and BlueLinx Holdings Inc. (NYSE:BXC). All of these stocks' market caps are closest to RELL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JMP,2,95,1 SGB,2,525,-1 NICK,3,15398,1 BXC,6,19499,-1 Average,3.25,8879,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.25 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $9 million in RELL's case. BlueLinx Holdings Inc. (NYSE:BXC) is the most popular stock in this table. On the other hand JMP Group Inc. (NYSE:JMP) is the least popular one with only 2 bullish hedge fund positions. Richardson Electronics, Ltd. (NASDAQ:RELL) 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 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately RELL wasn't nearly as popular as these 10 stocks and hedge funds that were betting on RELL were disappointed as the stock returned 10.2% during the same time 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.