Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in RPM International Inc. (NYSE:RPM)? The smart money sentiment can provide an answer to this question.
RPM International Inc. (NYSE:RPM) shareholders have witnessed an increase in activity from the world's largest hedge funds recently. RPM was in 25 hedge funds' portfolios at the end of the second quarter of 2019. There were 21 hedge funds in our database with RPM holdings at the end of the previous quarter. Our calculations also showed that RPM isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to 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 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to analyze the latest hedge fund action surrounding RPM International Inc. (NYSE:RPM).
What does smart money think about RPM International Inc. (NYSE:RPM)?
Heading into the third quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in RPM a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Hound Partners held the most valuable stake in RPM International Inc. (NYSE:RPM), which was worth $193.9 million at the end of the second quarter. On the second spot was Diamond Hill Capital which amassed $69.6 million worth of shares. Moreover, Starboard Value LP, Balyasny Asset Management, and Samlyn Capital were also bullish on RPM International Inc. (NYSE:RPM), allocating a large percentage of their portfolios to this stock.
Now, some big names have been driving this bullishness. Samlyn Capital, managed by Robert Pohly, initiated the most valuable position in RPM International Inc. (NYSE:RPM). Samlyn Capital had $29.1 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also made a $8.5 million investment in the stock during the quarter. The other funds with brand new RPM positions are Richard Chilton's Chilton Investment Company, Noam Gottesman's GLG Partners, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as RPM International Inc. (NYSE:RPM) but similarly valued. We will take a look at Hyatt Hotels Corporation (NYSE:H), RenaissanceRe Holdings Ltd. (NYSE:RNR), Nordson Corporation (NASDAQ:NDSN), and Omega Healthcare Investors Inc (NYSE:OHI). All of these stocks' market caps are closest to RPM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position H,23,846946,-1 RNR,20,720820,0 NDSN,17,47469,4 OHI,17,284232,4 Average,19.25,474867,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $475 million. That figure was $455 million in RPM's case. Hyatt Hotels Corporation (NYSE:H) is the most popular stock in this table. On the other hand Nordson Corporation (NASDAQ:NDSN) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks RPM International Inc. (NYSE:RPM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on RPM as the stock returned 13.2% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.