The market has been volatile in the last 6 months as the Federal Reserve continued its rate hikes and then abruptly reversed its stance and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q4 and the beginning of Q1. In this article, we analyze what the smart money thinks of RR Donnelley & Sons Company (NYSE:RRD) and find out how it is affected by hedge funds' moves.
RR Donnelley & Sons Company (NYSE:RRD) was in 14 hedge funds' portfolios at the end of March. RRD has seen a decrease in support from the world's most elite money managers recently. There were 17 hedge funds in our database with RRD holdings at the end of the previous quarter. Our calculations also showed that RRD isn't among the 30 most popular stocks among hedge funds.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_758477" align="aligncenter" width="450"] Andy Redleaf of Whitebox Advisors[/caption]
We're going to analyze the key hedge fund action surrounding RR Donnelley & Sons Company (NYSE:RRD).
Hedge fund activity in RR Donnelley & Sons Company (NYSE:RRD)
At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RRD over the last 15 quarters. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of RR Donnelley & Sons Company (NYSE:RRD), with a stake worth $5.5 million reported as of the end of March. Trailing AQR Capital Management was Brigade Capital, which amassed a stake valued at $4.6 million. Whitebox Advisors, Renaissance Technologies, and Elm Ridge Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that RR Donnelley & Sons Company (NYSE:RRD) has experienced falling interest from the smart money, we can see that there exists a select few hedgies that elected to cut their positions entirely in the third quarter. Interestingly, Steve Cohen's Point72 Asset Management sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, totaling about $0.6 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund dropped about $0.5 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as RR Donnelley & Sons Company (NYSE:RRD) but similarly valued. These stocks are MidWestOne Financial Group, Inc. (NASDAQ:MOFG), Adverum Biotechnologies, Inc. (NASDAQ:ADVM), Endeavour Silver Corp. (NYSE:EXK), and Sterling Construction Company, Inc. (NASDAQ:STRL). This group of stocks' market caps match RRD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MOFG,6,19475,2 ADVM,12,52296,-5 EXK,7,19804,0 STRL,15,50586,4 Average,10,35540,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $22 million in RRD's case. Sterling Construction Company, Inc. (NASDAQ:STRL) is the most popular stock in this table. On the other hand MidWestOne Financial Group, Inc. (NASDAQ:MOFG) is the least popular one with only 6 bullish hedge fund positions. RR Donnelley & Sons Company (NYSE:RRD) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately RRD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RRD were disappointed as the stock returned -54.4% 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.