The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Sturm, Ruger & Company, Inc. (NYSE:RGR) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Sturm, Ruger & Company, Inc. (NYSE:RGR) was in 27 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. RGR shareholders have witnessed an increase in support from the world’s most elite money managers recently. There were 14 hedge funds in our database with RGR positions at the end of the first quarter. Our calculations also showed that RGR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 S&P 500 ETFs by 58 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.
Paul Marshall of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a look at the latest hedge fund action surrounding Sturm, Ruger & Company, Inc. (NYSE:RGR).
How have hedgies been trading Sturm, Ruger & Company, Inc. (NYSE:RGR)?
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 93% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RGR over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Sturm, Ruger & Company, Inc. (NYSE:RGR), which was worth $125.6 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $17.2 million worth of shares. Marshall Wace LLP, PEAK6 Capital Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sabrepoint Capital allocated the biggest weight to Sturm, Ruger & Company, Inc. (NYSE:RGR), around 2.37% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.23 percent of its 13F equity portfolio to RGR.
Now, key money managers were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the biggest position in Sturm, Ruger & Company, Inc. (NYSE:RGR). Marshall Wace LLP had $17 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also initiated a $4.7 million position during the quarter. The following funds were also among the new RGR investors: Michael Gelband’s ExodusPoint Capital, Paul Tudor Jones’s Tudor Investment Corp, and Parvinder Thiara’s Athanor Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sturm, Ruger & Company, Inc. (NYSE:RGR) but similarly valued. We will take a look at Air Transport Services Group Inc. (NASDAQ:ATSG), DRDGOLD Ltd. (NYSE:DRD), Ameresco Inc (NYSE:AMRC), Theravance Biopharma Inc (NASDAQ:TBPH), Tri Continental Corporation (NYSE:TY), BancFirst Corporation (NASDAQ:BANF), and Retail Opportunity Investments Corp (NASDAQ:ROIC). All of these stocks’ market caps resemble RGR’s market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ATSG,21,128770,-1 DRD,2,27095,0 AMRC,13,73514,2 TBPH,18,352222,4 TY,3,1424,0 BANF,13,34034,1 ROIC,20,88018,2 Average,12.9,100725,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $220 million in RGR’s case. Air Transport Services Group Inc. (NASDAQ:ATSG) is the most popular stock in this table. On the other hand DRDGOLD Ltd. (NYSE:DRD) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Sturm, Ruger & Company, Inc. (NYSE:RGR) is more popular among hedge funds. Our overall hedge fund sentiment score for RGR is 90. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Unfortunately RGR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RGR were disappointed as the stock returned -13.7% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.