Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Dr. Reddy’s Laboratories Limited (NYSE:RDY).
Is RDY a good stock to buy now? Hedge funds were buying. The number of bullish hedge fund bets improved by 1 recently. Dr. Reddy’s Laboratories Limited (NYSE:RDY) was in 13 hedge funds’ portfolios at the end of September. The all time high for this statistic is 14. Our calculations also showed that RDY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 12 hedge funds in our database with RDY positions at the end of the second quarter.
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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a glance at the recent hedge fund action surrounding Dr. Reddy’s Laboratories Limited (NYSE:RDY).
Do Hedge Funds Think RDY Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RDY over the last 21 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Dr. Reddy’s Laboratories Limited (NYSE:RDY), with a stake worth $164.3 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $12.8 million. D E Shaw, GLG Partners, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Dr. Reddy’s Laboratories Limited (NYSE:RDY), around 2.46% of its 13F portfolio. Portland Hill Asset Management is also relatively very bullish on the stock, designating 1.47 percent of its 13F equity portfolio to RDY.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, initiated the largest position in Dr. Reddy’s Laboratories Limited (NYSE:RDY). Millennium Management had $0.6 million invested in the company at the end of the quarter.
Let’s go over hedge fund activity in other stocks similar to Dr. Reddy’s Laboratories Limited (NYSE:RDY). These stocks are Dynatrace, Inc. (NYSE:DT), Evergy, Inc. (NYSE:EVRG), Open Text Corporation (NASDAQ:OTEX), Whirlpool Corporation (NYSE:WHR), Teledyne Technologies Incorporated (NYSE:TDY), Booz Allen Hamilton Holding Corporation (NYSE:BAH), and Autohome Inc (NYSE:ATHM). This group of stocks’ market caps match RDY’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 29.9 hedge funds with bullish positions and the average amount invested in these stocks was $740 million. That figure was $208 million in RDY’s case. Dynatrace, Inc. (NYSE:DT) is the most popular stock in this table. On the other hand Autohome Inc (NYSE:ATHM) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Dr. Reddy’s Laboratories Limited (NYSE:RDY) is even less popular than ATHM. Our overall hedge fund sentiment score for RDY is 33.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards RDY. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th but managed to beat the market again by 16.2 percentage points. Unfortunately RDY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RDY investors were disappointed as the stock returned -2.6% since the end of the third quarter (through 12/8) 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 most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.