2019 Review: Most Favored Hedge Fund Stocks vs. Raytheon Company (RTN)

Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Raytheon Company (NYSE:RTN) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

Raytheon Company (NYSE:RTN) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that RTN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Ken Griffin

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a peek at the key hedge fund action surrounding Raytheon Company (NYSE:RTN).

What have hedge funds been doing with Raytheon Company (NYSE:RTN)?

At Q3’s end, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in RTN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is RTN A Good Stock To Buy?

More specifically, Soroban Capital Partners was the largest shareholder of Raytheon Company (NYSE:RTN), with a stake worth $855.1 million reported as of the end of September. Trailing Soroban Capital Partners was Citadel Investment Group, which amassed a stake valued at $529.8 million. Two Sigma Advisors, Sculptor Capital, and Holocene Advisors 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 Soroban Capital Partners allocated the biggest weight to Raytheon Company (NYSE:RTN), around 12.03% of its 13F portfolio. TOMS Capital is also relatively very bullish on the stock, designating 7.76 percent of its 13F equity portfolio to RTN.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Sculptor Capital, created the most valuable position in Raytheon Company (NYSE:RTN). Sculptor Capital had $240.5 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $183.2 million investment in the stock during the quarter. The other funds with brand new RTN positions are Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management, Zach Schreiber’s Point State Capital, and Jeffrey Tannenbaum’s Fir Tree.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Raytheon Company (NYSE:RTN) but similarly valued. These stocks are Target Corporation (NYSE:TGT), General Motors Company (NYSE:GM), Takeda Pharmaceutical Company Limited (NYSE:TAK), and Prologis Inc (NYSE:PLD). This group of stocks’ market caps are similar to RTN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TGT 53 2073012 16
GM 68 6375993 19
TAK 28 1243754 1
PLD 27 360500 3
Average 44 2513315 9.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $2513 million. That figure was $3255 million in RTN’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Prologis Inc (NYSE:PLD) is the least popular one with only 27 bullish hedge fund positions. Raytheon Company (NYSE:RTN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on RTN as the stock returned 45.6% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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