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Should You Avoid Resolute Forest Products Inc (RFP)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. What do these smart investors think about Resolute Forest Products Inc (NYSE:RFP)?

Is Resolute Forest Products Inc (NYSE:RFP) a worthy investment right now? Hedge funds are taking a pessimistic view. The number of long hedge fund positions retreated by 5 recently. Our calculations also showed that RFP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). RFP was in 9 hedge funds’ portfolios at the end of the first quarter of 2020. There were 14 hedge funds in our database with RFP positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Prem Watsa of Fairfax Financial Holdings

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the top 15 defense contractors in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the key hedge fund action surrounding Resolute Forest Products Inc (NYSE:RFP).

Hedge fund activity in Resolute Forest Products Inc (NYSE:RFP)

At the end of the first quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -36% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in RFP a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Fairfax Financial Holdings, managed by Prem Watsa, holds the number one position in Resolute Forest Products Inc (NYSE:RFP). Fairfax Financial Holdings has a $38.5 million position in the stock, comprising 2.7% of its 13F portfolio. On Fairfax Financial Holdings’s heels is Renaissance Technologies, which holds a $1.4 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions encompass D. E. Shaw’s D E Shaw, John Overdeck and David Siegel’s Two Sigma Advisors and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Fairfax Financial Holdings allocated the biggest weight to Resolute Forest Products Inc (NYSE:RFP), around 2.67% of its 13F portfolio. Dalton Investments is also relatively very bullish on the stock, designating 0.1 percent of its 13F equity portfolio to RFP.

Since Resolute Forest Products Inc (NYSE:RFP) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few funds that slashed their positions entirely in the first quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP cut the biggest stake of the 750 funds tracked by Insider Monkey, worth an estimated $0.7 million in stock. Noam Gottesman’s fund, GLG Partners, also dumped its stock, about $0.4 million worth. These transactions are important to note, as total hedge fund interest dropped by 5 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Resolute Forest Products Inc (NYSE:RFP) but similarly valued. These stocks are Genasys Inc. (NASDAQ:GNSS), Points International Ltd (NASDAQ:PCOM), Oconee Federal Financial Corp. (NASDAQ:OFED), and Calyxt, Inc. (NASDAQ:CLXT). This group of stocks’ market caps are closest to RFP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GNSS 6 11852 0
PCOM 10 18498 3
OFED 1 332 0
CLXT 4 2098 0
Average 5.25 8195 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $43 million in RFP’s case. Points International Ltd (NASDAQ:PCOM) is the most popular stock in this table. On the other hand Oconee Federal Financial Corp. (NASDAQ:OFED) is the least popular one with only 1 bullish hedge fund positions. Resolute Forest Products Inc (NYSE:RFP) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on RFP as the stock returned 58.7% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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