Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Royal Caribbean Cruises Ltd. (NYSE:RCL).
Royal Caribbean Cruises Ltd. (NYSE:RCL) was in 43 hedge funds’ portfolios at the end of December. RCL investors should pay attention to a decrease in hedge fund sentiment recently. There were 49 hedge funds in our database with RCL positions at the end of the previous quarter. Our calculations also showed that RCL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Clint Carlson of Carlson Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the latest hedge fund action regarding Royal Caribbean Cruises Ltd. (NYSE:RCL).
What have hedge funds been doing with Royal Caribbean Cruises Ltd. (NYSE:RCL)?
At Q4’s end, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. By comparison, 52 hedge funds held shares or bullish call options in RCL a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Royal Caribbean Cruises Ltd. (NYSE:RCL), which was worth $407 million at the end of the third quarter. On the second spot was Eminence Capital which amassed $151.3 million worth of shares. Two Sigma Advisors, Eminence Capital, and Palestra Capital Management 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 Unio Capital allocated the biggest weight to Royal Caribbean Cruises Ltd. (NYSE:RCL), around 4.78% of its 13F portfolio. Anchor Bolt Capital is also relatively very bullish on the stock, earmarking 3.66 percent of its 13F equity portfolio to RCL.
Due to the fact that Royal Caribbean Cruises Ltd. (NYSE:RCL) has witnessed bearish sentiment from the smart money, it’s safe to say that there is a sect of hedgies who were dropping their full holdings heading into Q4. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest position of the 750 funds tracked by Insider Monkey, worth an estimated $141.1 million in call options, and Gregg Moskowitz’s Interval Partners was right behind this move, as the fund cut about $54.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 6 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Royal Caribbean Cruises Ltd. (NYSE:RCL) but similarly valued. These stocks are Cintas Corporation (NASDAQ:CTAS), Alcon Inc. (NYSE:ALC), Motorola Solutions Inc (NYSE:MSI), and Eversource Energy (NYSE:ES). This group of stocks’ market valuations resemble RCL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CTAS | 45 | 820938 | 4 |
| ALC | 24 | 705505 | 0 |
| MSI | 41 | 560978 | 4 |
| ES | 24 | 452875 | 2 |
| Average | 33.5 | 635074 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $635 million. That figure was $1386 million in RCL’s case. Cintas Corporation (NASDAQ:CTAS) is the most popular stock in this table. On the other hand Alcon Inc. (NYSE:ALC) is the least popular one with only 24 bullish hedge fund positions. Royal Caribbean Cruises Ltd. (NYSE:RCL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately RCL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RCL were disappointed as the stock returned -67.9% during the same time period 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 so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
