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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 have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Reliance Steel & Aluminum Co. (NYSE:RS) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Is RS a good stock to buy? Reliance Steel & Aluminum Co. (NYSE:RS) was in 30 hedge funds' portfolios at the end of September. The all time high for this statistic is 34. RS has experienced an increase in hedge fund interest in recent months. There were 27 hedge funds in our database with RS holdings at the end of June. Our calculations also showed that RS isn't among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.
David Siegel of Two Sigma Advisors
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Keeping this in mind we're going to take a gander at the fresh hedge fund action encompassing Reliance Steel & Aluminum Co. (NYSE:RS).
Do Hedge Funds Think RS Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RS over the last 21 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
The largest stake in Reliance Steel & Aluminum Co. (NYSE:RS) was held by Royce & Associates, which reported holding $52.6 million worth of stock at the end of September. It was followed by Millennium Management with a $44.7 million position. Other investors bullish on the company included AQR Capital Management, D E Shaw, and Scopus Asset Management. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to Reliance Steel & Aluminum Co. (NYSE:RS), around 5.13% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.57 percent of its 13F equity portfolio to RS.
Now, specific money managers have been driving this bullishness. Scopus Asset Management, managed by Alexander Mitchell, assembled the most valuable position in Reliance Steel & Aluminum Co. (NYSE:RS). Scopus Asset Management had $19.9 million invested in the company at the end of the quarter. Clint Murray's Lodge Hill Capital also initiated a $17.9 million position during the quarter. The following funds were also among the new RS investors: Qing Li's Sciencast Management, John Overdeck and David Siegel's Two Sigma Advisors, and Alec Litowitz and Ross Laser's Magnetar Capital.
Let's check out hedge fund activity in other stocks similar to Reliance Steel & Aluminum Co. (NYSE:RS). We will take a look at Interpublic Group of Companies Inc (NYSE:IPG), PRA Health Sciences Inc (NASDAQ:PRAH), Reinsurance Group of America Inc (NYSE:RGA), Encompass Health Corporation (NYSE:EHC), Churchill Downs Incorporated (NASDAQ:CHDN), Regency Centers Corp (NASDAQ:REG), and Ritchie Bros. Auctioneers (NYSE:RBA). This group of stocks' market valuations resemble RS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IPG,31,486054,9 PRAH,24,168019,-9 RGA,31,258499,-2 EHC,32,612130,-1 CHDN,28,511671,3 REG,23,174342,8 RBA,21,495118,4 Average,27.1,386548,1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.1 hedge funds with bullish positions and the average amount invested in these stocks was $387 million. That figure was $267 million in RS's case. Encompass Health Corporation (NYSE:EHC) is the most popular stock in this table. On the other hand Ritchie Bros. Auctioneers (NYSE:RBA) is the least popular one with only 21 bullish hedge fund positions. Reliance Steel & Aluminum Co. (NYSE:RS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RS is 75.4. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on RS as the stock returned 16% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.