Hedge Funds Aren’t Crazy About Royal Bank of Canada (RY) Anymore

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 Bank of Canada (NYSE:RY).

Is Royal Bank of Canada (NYSE:RY) the right pick for your portfolio? Prominent investors are turning less bullish. The number of long hedge fund bets shrunk by 4 lately. Our calculations also showed that RY 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.

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, We take a look at lists like the 10 stocks that went up during the 2008 crash to identify the companies that are likely to deliver double digit returns in up and down markets. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the new hedge fund action surrounding Royal Bank of Canada (NYSE:RY).

How are hedge funds trading Royal Bank of Canada (NYSE:RY)?

Heading into the second quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the fourth quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in RY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, John Overdeck and David Siegel’s Two Sigma Advisors has the largest position in Royal Bank of Canada (NYSE:RY), worth close to $39.7 million, comprising 0.2% of its total 13F portfolio. On Two Sigma Advisors’s heels is Bridgewater Associates, led by Ray Dalio, holding a $28.5 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other peers with similar optimism include Paul Marshall and Ian Wace’s Marshall Wace LLP, and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Heathbridge Capital Management allocated the biggest weight to Royal Bank of Canada (NYSE:RY), around 2.4% of its 13F portfolio. Bridgewater Associates is also relatively very bullish on the stock, earmarking 0.57 percent of its 13F equity portfolio to RY.

Due to the fact that Royal Bank of Canada (NYSE:RY) has faced a decline in interest from hedge fund managers, we can see that there is a sect of fund managers that decided to sell off their full holdings by the end of the first quarter. Intriguingly, Donald Sussman’s Paloma Partners dumped the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising close to $3.9 million in stock. Brad Dunkley and Blair Levinsky’s fund, Waratah Capital Advisors, also sold off its stock, about $2.3 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 4 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks similar to Royal Bank of Canada (NYSE:RY). We will take a look at Anheuser-Busch InBev SA/NV (NYSE:BUD), The Boeing Company (NYSE:BA), BP plc (NYSE:BP), and Raytheon Technologies Corporation (NYSE:UTX). All of these stocks’ market caps resemble RY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BUD 17 877182 -6
BA 54 877378 -28
BP 31 877653 -9
UTX 62 4025728 -19
Average 41 1664485 -15.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1664 million. That figure was $139 million in RY’s case. Raytheon Technologies Corporation (NYSE:UTX) is the most popular stock in this table. On the other hand Anheuser-Busch InBev SA/NV (NYSE:BUD) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Royal Bank of Canada (NYSE:RY) is even less popular than BUD. Hedge funds dodged a bullet by taking a bearish stance towards RY. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately RY wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); RY investors were disappointed as the stock returned 12.4% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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