It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Range Resources Corp. (NYSE:RRC).
Hedge fund interest in Range Resources Corp. (NYSE:RRC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare RRC to other stocks including Kaiser Aluminum Corp. (NASDAQ:KALU), MSG Networks Inc (NYSE:MSGN), and Atrion Corporation (NASDAQ:ATRI) to get a better sense of its popularity.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the key hedge fund action encompassing Range Resources Corp. (NYSE:RRC).
Hedge fund activity in Range Resources Corp. (NYSE:RRC)
At Q2’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in RRC a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, SailingStone Capital Partners was the largest shareholder of Range Resources Corp. (NYSE:RRC), with a stake worth $282.4 million reported as of the end of March. Trailing SailingStone Capital Partners was Kopernik Global Investors, which amassed a stake valued at $78.2 million. Millennium Management, D E Shaw, and Fisher Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Range Resources Corp. (NYSE:RRC) has faced a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their positions entirely last quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management sold off the biggest investment of the 750 funds tracked by Insider Monkey, totaling close to $47.2 million in stock. Stanley Druckenmiller’s fund, Duquesne Capital, also cut its stock, about $9.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Range Resources Corp. (NYSE:RRC) but similarly valued. We will take a look at Kaiser Aluminum Corp. (NASDAQ:KALU), MSG Networks Inc (NYSE:MSGN), Atrion Corporation (NASDAQ:ATRI), and State Auto Financial Corporation (NASDAQ:STFC). All of these stocks’ market caps resemble RRC’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $575 million in RRC’s case. MSG Networks Inc (NYSE:MSGN) is the most popular stock in this table. On the other hand State Auto Financial Corporation (NASDAQ:STFC) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Range Resources Corp. (NYSE:RRC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately RRC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RRC were disappointed as the stock returned -45% during the third quarter 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.