While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding the Royal Bank of Scotland Group plc (NYSE:RBS).
Royal Bank of Scotland Group plc (NYSE:RBS) was in 5 hedge funds’ portfolios at the end of the third quarter of 2019. RBS shareholders have witnessed a decrease in hedge fund sentiment lately. There were 6 hedge funds in our database with RBS holdings at the end of the previous quarter. Our calculations also showed that RBS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world, there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best-performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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 go over the recent hedge fund action surrounding Royal Bank of Scotland Group plc (NYSE:RBS).
What does smart money think about Royal Bank of Scotland Group plc (NYSE:RBS)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in RBS over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies holds the most valuable position in Royal Bank of Scotland Group plc (NYSE:RBS). Renaissance Technologies has a $27.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’s heels is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $0.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish consist of Paul Marshall and Ian Wace’s Marshall Wace, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position, Renaissance Technologies allocated the biggest weight to Royal Bank of Scotland Group plc (NYSE:RBS), around 0.02% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, dishing out 0.003 percent of its 13F equity portfolio to RBS.
Seeing as Royal Bank of Scotland Group plc (NYSE:RBS) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds that slashed their positions entirely in the third quarter. Intriguingly, Ken Griffin’s Citadel Investment Group dumped the biggest stake of all the hedgies followed by Insider Monkey, comprising about $0.2 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also said goodbye to its stock, about $0.1 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 fund in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Royal Bank of Scotland Group plc (NYSE:RBS). These stocks are Randgold Resources Ltd. (NASDAQ:GOLD), Credit Suisse Group AG (NYSE:CS), SunTrust Banks, Inc. (NYSE:STI), and O’Reilly Automotive Inc (NASDAQ:ORLY). All of these stocks’ market caps match RBS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GOLD | 42 | 1443824 | 3 |
| CS | 14 | 226949 | 3 |
| STI | 31 | 1100197 | 0 |
| ORLY | 42 | 2055261 | -8 |
| Average | 32.25 | 1206558 | -0.5 |
View the table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1207 million. That figure was $29 million in RBS’s case. Randgold Resources Ltd. (NASDAQ:GOLD) is the most popular stock in this table. On the other hand, Credit Suisse Group AG (NYSE:CS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Royal Bank of Scotland Group plc (NYSE:RBS) is even less popular than CS. Hedge funds clearly dropped the ball on RBS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on RBS as the stock returned 14.9% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
