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Did Hedge Funds Make The Right Call On Rio Tinto Group (RIO)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Rio Tinto Group (NYSE:RIO) based on that data and determine whether they were really smart about the stock.

Rio Tinto Group (NYSE:RIO) investors should be aware of a decrease in support from the world’s most elite money managers recently. RIO was in 20 hedge funds’ portfolios at the end of March. There were 21 hedge funds in our database with RIO positions at the end of the previous quarter. Our calculations also showed that RIO isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

If you’d ask most stock holders, hedge funds are perceived as unimportant, old investment tools of years past. While there are over 8000 funds trading at the moment, Our researchers choose to focus on the crème de la crème of this group, approximately 850 funds. These hedge fund managers have their hands on the lion’s share of the hedge fund industry’s total capital, and by tracking their finest picks, Insider Monkey has spotted various investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a look at the key hedge fund action surrounding Rio Tinto Group (NYSE:RIO).

How have hedgies been trading Rio Tinto Group (NYSE:RIO)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in RIO a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is RIO A Good Stock To Buy?

The largest stake in Rio Tinto Group (NYSE:RIO) was held by Fisher Asset Management, which reported holding $507.5 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $257.3 million position. Other investors bullish on the company included Citadel Investment Group, Renaissance Technologies, and Impala Asset Management. In terms of the portfolio weights assigned to each position JHL Capital Group allocated the biggest weight to Rio Tinto Group (NYSE:RIO), around 31.27% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, earmarking 9.17 percent of its 13F equity portfolio to RIO.

Judging by the fact that Rio Tinto Group (NYSE:RIO) has faced declining sentiment from the smart money, it’s easy to see that there was a specific group of funds that decided to sell off their entire stakes by the end of the first quarter. Intriguingly, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners dropped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at about $37.4 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $10 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Rio Tinto Group (NYSE:RIO) but similarly valued. We will take a look at Zoetis Inc (NYSE:ZTS), Canadian National Railway Company (NYSE:CNI), Booking Holdings Inc. (NASDAQ:BKNG), and Biogen Inc. (NASDAQ:BIIB). This group of stocks’ market valuations are closest to RIO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZTS 60 1775801 12
CNI 26 1605797 -3
BKNG 90 4914673 16
BIIB 70 4497544 9
Average 61.5 3198454 8.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 61.5 hedge funds with bullish positions and the average amount invested in these stocks was $3198 million. That figure was $1108 million in RIO’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Rio Tinto Group (NYSE:RIO) is even less popular than CNI. Hedge funds clearly dropped the ball on RIO as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on RIO as the stock returned 37.3% since the end of March and outperformed the market by an even larger margin.

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