Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 15 S&P 500 stocks among hedge funds at the end of December 2018 yielded an average return of 19.7% year-to-date, vs. a gain of 13.1% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Royal Bank of Canada (NYSE:RY).
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 market by 32 percentage points since May 2014 through March 12, 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to review the recent hedge fund action regarding Royal Bank of Canada (NYSE:RY).
What does the smart money think about Royal Bank of Canada (NYSE:RY)?
At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the second quarter of 2018. On the other hand, there were a total of 12 hedge funds with a bullish position in RY a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in Royal Bank of Canada (NYSE:RY), which was worth $282.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $168.6 million worth of shares. Moreover, AQR Capital Management, Bridgewater Associates, and GLG Partners were also bullish on Royal Bank of Canada (NYSE:RY), allocating a large percentage of their portfolios to this stock.
Due to the fact that Royal Bank of Canada (NYSE:RY) has experienced falling interest from the smart money, it’s easy to see that there exists a select few hedge funds that elected to cut their entire stakes by the end of the third quarter. At the top of the heap, Israel Englander’s Millennium Management dropped the biggest position of the “upper crust” of funds watched by Insider Monkey, worth close to $14.6 million in stock. Lex Van Dam’s fund, Hampstead Capital, also sold off its stock, about $3.9 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Royal Bank of Canada (NYSE:RY) but similarly valued. We will take a look at Honeywell International Inc. (NYSE:HON), AstraZeneca plc (NYSE:AZN), GlaxoSmithKline plc (NYSE:GSK), and Accenture Plc (NYSE:ACN). This group of stocks’ market caps are similar to RY’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 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1720 million. That figure was $655 million in RY’s case. Honeywell International Inc. (NYSE:HON) is the most popular stock in this table. On the other hand AstraZeneca plc (NYSE:AZN) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Royal Bank of Canada (NYSE:RY) is even less popular than AZN. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on RY as the stock returned 14.8% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.