Do Hedge Funds Love Rio Tinto plc (ADR) (RIO)?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Rio Tinto plc (ADR) (NYSE:RIO) investors should be aware of a decrease in support from the world’s most successful money managers of late. There were 21 hedge funds in our database with RIO holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as E I Du Pont De Nemours And Co (NYSE:DD), Banco Santander, S.A. (ADR) (NYSE:SAN), and Itau Unibanco Holding SA (ADR) (NYSE:ITUB) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year, involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

Now, we’re going to check out the recent action surrounding Rio Tinto plc (ADR) (NYSE:RIO).

What does the smart money think about Rio Tinto plc (ADR) (NYSE:RIO)?

At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 14% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards RIO over the last 5 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Robert Bishop’s Impala Asset Management has the largest position in Rio Tinto plc (ADR) (NYSE:RIO), worth close to $112.2 million, accounting for 7.4% of its total 13F portfolio. The second most bullish fund manager is Luminus Management, led by Jonathan Barrett and Paul Segal, holding a $98.9 million position; 2.5% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish include Jim Simons’s Renaissance Technologies, Ken Heebner’s Capital Growth Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that two of these hedge funds (Impala Asset Management and Luminus Management) are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually got rid of their positions entirely. It’s worth mentioning that Mike Masters’s Masters Capital Management dumped the largest position of the “upper crust” of funds monitored by Insider Monkey, worth close to $55.9 million in call options, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $24.3 million worth of Rio Tinto plc (ADR) (NYSE:RIO) shares.

Let’s go over hedge fund activity in other stocks similar to Rio Tinto plc (ADR) (NYSE:RIO). These stocks are E I Du Pont De Nemours And Co (NYSE:DD), Banco Santander, S.A. (ADR) (NYSE:SAN), Itau Unibanco Holding SA (ADR) (NYSE:ITUB), and BlackRock, Inc. (NYSE:BLK). This group of stocks’ market caps resemble RIO’s market cap.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $1.21 billion. That figure was just $394 million in RIO’s case. E I Du Pont De Nemours And Co (NYSE:DD) is the most popular stock in this table. On the other hand Banco Santander, S.A. (ADR) (NYSE:SAN) is the least popular one with only 16 bullish hedge fund positions. Rio Tinto plc (ADR) (NYSE:RIO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard DD might be a better candidate to consider taking a long position in.

Disclosure: none.