Hedge Funds Are Selling Royal Gold, Inc (RGLD)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 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 March 31st, a week after the market trough. In this article we look at what those investors think of Royal Gold, Inc (NASDAQ:RGLD).

Royal Gold, Inc (NASDAQ:RGLD) investors should pay attention to a decrease in hedge fund interest lately. Our calculations also showed that RGLD 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one as well as this tiny lithium play. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the key hedge fund action encompassing Royal Gold, Inc (NASDAQ:RGLD).

How have hedgies been trading Royal Gold, Inc (NASDAQ:RGLD)?

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in RGLD a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies has the biggest position in Royal Gold, Inc (NASDAQ:RGLD), worth close to $58.4 million, corresponding to 0.1% of its total 13F portfolio. Coming in second is D E Shaw, managed by D. E. Shaw, which holds a $43.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism contain John Overdeck and David Siegel’s Two Sigma Advisors, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Horizon Asset Management allocated the biggest weight to Royal Gold, Inc (NASDAQ:RGLD), around 0.8% of its 13F portfolio. Kopernik Global Investors is also relatively very bullish on the stock, setting aside 0.56 percent of its 13F equity portfolio to RGLD.

Seeing as Royal Gold, Inc (NASDAQ:RGLD) has faced declining sentiment from the smart money, it’s safe to say that there was a specific group of funds who were dropping their full holdings in the first quarter. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management cut the largest investment of the 750 funds tracked by Insider Monkey, totaling about $6.1 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dropped about $0.9 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 2 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Royal Gold, Inc (NASDAQ:RGLD). We will take a look at AGNC Investment Corp. (NASDAQ:AGNC), Melco Resorts & Entertainment Limited (NASDAQ:MLCO), The Scotts Miracle-Gro Company (NYSE:SMG), and Pegasystems Inc. (NASDAQ:PEGA). All of these stocks’ market caps match RGLD’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $516 million. That figure was $237 million in RGLD’s case. Pegasystems Inc. (NASDAQ:PEGA) is the most popular stock in this table. On the other hand AGNC Investment Corp. (NASDAQ:AGNC) is the least popular one with only 27 bullish hedge fund positions. Royal Gold, Inc (NASDAQ:RGLD) is not the least popular stock in this group but hedge fund interest is still below average. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on RGLD as the stock returned 52.3% during the second quarter and outperformed the market by an even larger margin.

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