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Hedge Funds Have Never Been More Bullish On Royal Bank of Canada (RY)

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Royal Bank of Canada (NYSE:RY).

Royal Bank of Canada (NYSE:RY) was in 17 hedge funds’ portfolios at the end of September. RY shareholders have witnessed an increase in hedge fund interest recently. There were 15 hedge funds in our database with RY positions at the end of the previous quarter. Our calculations also showed that RY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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.

Michael Platt Bluecrest Capital Management

Michael Platt of Bluecrest Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the latest hedge fund action regarding Royal Bank of Canada (NYSE:RY).

Hedge fund activity in Royal Bank of Canada (NYSE:RY)

Heading into the fourth quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RY over the last 17 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies, founded by Jim Simons, holds the biggest position in Royal Bank of Canada (NYSE:RY). Renaissance Technologies has a $187.3 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $83.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions encompass John Overdeck and David Siegel’s Two Sigma Advisors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Ray Dalio’s Bridgewater Associates. In terms of the portfolio weights assigned to each position Waratah Capital Advisors allocated the biggest weight to Royal Bank of Canada (NYSE:RY), around 0.55% of its 13F portfolio. Bridgewater Associates is also relatively very bullish on the stock, designating 0.34 percent of its 13F equity portfolio to RY.

Now, some big names were leading the bulls’ herd. D E Shaw, managed by David E. Shaw, initiated the most outsized call position in Royal Bank of Canada (NYSE:RY). D E Shaw had $5.4 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $1.3 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Minhua Zhang’s Weld Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Royal Bank of Canada (NYSE:RY). These stocks are Amgen, Inc. (NASDAQ:AMGN), Sanofi (NASDAQ:SNY), Union Pacific Corporation (NYSE:UNP), and NextEra Energy, Inc. (NYSE:NEE). This group of stocks’ market values resemble RY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMGN 48 2569750 6
SNY 27 985072 2
UNP 62 5197745 -2
NEE 41 1505214 1
Average 44.5 2564445 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.5 hedge funds with bullish positions and the average amount invested in these stocks was $2564 million. That figure was $491 million in RY’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand Sanofi (NASDAQ:SNY) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Royal Bank of Canada (NYSE:RY) is even less popular than SNY. Hedge funds dodged a bullet by taking a bearish stance towards RY. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately RY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RY investors were disappointed as the stock returned 1.7% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.

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

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