U.S. Markets open in 2 hrs 3 mins

Were Hedge Funds Right About Republic Services, Inc. (RSG)?

Nina Todic

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Republic Services, Inc. (NYSE:RSG).

Is Republic Services, Inc. (NYSE:RSG) the right investment to pursue these days? The best stock pickers are getting more optimistic. The number of bullish hedge fund positions went up by 4 recently. Our calculations also showed that RSG isn't among the 30 most popular stocks among hedge funds. RSG was in 30 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 26 hedge funds in our database with RSG holdings at the end of the previous quarter.

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 32 percentage points since May 2014 through March 12, 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.

CHILTON INVESTMENT COMPANY

We're going to view the recent hedge fund action encompassing Republic Services, Inc. (NYSE:RSG).

What have hedge funds been doing with Republic Services, Inc. (NYSE:RSG)?

At Q4's end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in RSG a year ago. With hedgies' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

RSG

Among these funds, AQR Capital Management held the most valuable stake in Republic Services, Inc. (NYSE:RSG), which was worth $149.6 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $134.4 million worth of shares. Moreover, Chilton Investment Company, Two Sigma Advisors, and Renaissance Technologies were also bullish on Republic Services, Inc. (NYSE:RSG), allocating a large percentage of their portfolios to this stock.

Consequently, key hedge funds were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, assembled the largest position in Republic Services, Inc. (NYSE:RSG). Point72 Asset Management had $51.7 million invested in the company at the end of the quarter. Andrew Sandler's Sandler Capital Management also made a $20.9 million investment in the stock during the quarter. The other funds with brand new RSG positions are Alexander Mitchell's Scopus Asset Management, and Ken Griffin's Citadel Investment Group.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Republic Services, Inc. (NYSE:RSG) but similarly valued. These stocks are Paychex, Inc. (NASDAQ:PAYX), Halliburton Company (NYSE:HAL), General Mills, Inc. (NYSE:GIS), and Square, Inc. (NYSE:SQ). This group of stocks' market valuations are closest to RSG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAYX,30,946675,0 HAL,34,558549,-5 GIS,37,405469,5 SQ,35,840921,12 Average,34,687904,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $688 million. That figure was $692 million in RSG's case. General Mills, Inc. (NYSE:GIS) is the most popular stock in this table. On the other hand Paychex, Inc. (NASDAQ:PAYX) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Republic Services, Inc. (NYSE:RSG) is even less popular than PAYX. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately RSG wasn't in this group. New hedge funds that bet on RSG were disappointed as the stock returned 9.1% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

Disclosure: None. This article was originally published at Insider Monkey.

Related Content