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The Royal Bank of Scotland Group plc (RBS): Hedge Fund Sentiment Unchanged

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of The Royal Bank of Scotland Group plc (NYSE:RBS) based on that data.

The Royal Bank of Scotland Group plc (NYSE:RBS) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds’ portfolios at the end of the first quarter of 2020. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Palo Alto Networks Inc (NYSE:PANW), Rogers Communications Inc. (NYSE:RCI), and Microchip Technology Incorporated (NASDAQ:MCHP) to gather more data points. Our calculations also showed that RBS 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).

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

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 S&P 500 ETFs by more than 58 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 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 stocks that are in our short portfolio.

Ken Griffin CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the new hedge fund action regarding The Royal Bank of Scotland Group plc (NYSE:RBS).

Hedge fund activity in The Royal Bank of Scotland Group plc (NYSE:RBS)

At Q1’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RBS over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in The Royal Bank of Scotland Group plc (NYSE:RBS), which was worth $12.4 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $0.6 million worth of shares. Citadel Investment Group, ExodusPoint Capital, and Engineers Gate Manager 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 Renaissance Technologies allocated the biggest weight to The Royal Bank of Scotland Group plc (NYSE:RBS), around 0.01% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to RBS.

Since The Royal Bank of Scotland Group plc (NYSE:RBS) has experienced a decline in interest from hedge fund managers, logic holds that there exists a select few hedgies who were dropping their entire stakes heading into Q4. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest investment of all the hedgies watched by Insider Monkey, worth close to $0.3 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dumped about $0.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Royal Bank of Scotland Group plc (NYSE:RBS) but similarly valued. We will take a look at Palo Alto Networks Inc (NYSE:PANW), Rogers Communications Inc. (NYSE:RCI), Microchip Technology Incorporated (NASDAQ:MCHP), and Telefonica Brasil SA (NYSE:VIV). All of these stocks’ market caps are similar to RBS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PANW 47 2721801 0
RCI 16 237258 3
MCHP 38 751411 -8
VIV 8 79400 -4
Average 27.25 947468 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $947 million. That figure was $13 million in RBS’s case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks The Royal Bank of Scotland Group plc (NYSE:RBS) is even less popular than VIV. Hedge funds dodged a bullet by taking a bearish stance towards RBS. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately RBS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); RBS investors were disappointed as the stock returned 2.2% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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