Did Hedge Funds Drop The Ball On Rent-A-Center Inc (RCII) ?
Nina Todic
"Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Rent-A-Center Inc (NASDAQ:RCII).
Is Rent-A-Center Inc (NASDAQ:RCII) a buy, sell, or hold? Money managers are in an optimistic mood. The number of bullish hedge fund positions rose by 2 recently. Our calculations also showed that rcii isn't among the 30 most popular stocks among hedge funds.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
MILLENNIUM MANAGEMENT
Let's analyze the fresh hedge fund action encompassing Rent-A-Center Inc (NASDAQ:RCII).
How have hedgies been trading Rent-A-Center Inc (NASDAQ:RCII)?
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the second quarter of 2018. On the other hand, there were a total of 22 hedge funds with a bullish position in RCII a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
No of Hedge Funds with RCII Positions
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Engaged Capital, managed by Glenn W. Welling, holds the biggest position in Rent-A-Center Inc (NASDAQ:RCII). Engaged Capital has a $86.4 million position in the stock, comprising 16% of its 13F portfolio. The second largest stake is held by Water Island Capital, managed by John Orrico, which holds a $39.5 million position; 2.9% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions encompass Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Israel Englander's Millennium Management and Ken Griffin's Citadel Investment Group.
Now, some big names were leading the bulls' herd. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, initiated the largest position in Rent-A-Center Inc (NASDAQ:RCII). LMR Partners had $31.9 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $4.4 million position during the quarter. The following funds were also among the new RCII investors: Elise Di Vincenzo Crumbine's Stormborn Capital Management, Steve Cohen's Point72 Asset Management, and Dmitry Balyasny's Balyasny Asset Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Rent-A-Center Inc (NASDAQ:RCII) but similarly valued. These stocks are Enterprise Financial Services Corp (NASDAQ:EFSC), Social Capital Hedosophia Holdings Corp. (NYSE:IPOA), PJT Partners Inc (NYSE:PJT), and Natera Inc (NASDAQ:NTRA). This group of stocks' market caps are closest to RCII's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EFSC,15,53093,2 IPOA,21,288648,-2 PJT,18,141813,1 NTRA,17,99976,-4 Average,17.75,145883,-0.75 [/table]
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $146 million. That figure was $250 million in RCII's case. Social Capital Hedosophia Holdings Corp. (NYSE:IPOA) is the most popular stock in this table. On the other hand Enterprise Financial Services Corp (NASDAQ:EFSC) is the least popular one with only 15 bullish hedge fund positions. Rent-A-Center Inc (NASDAQ:RCII) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on RCII as the stock returned 41.4% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
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