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Were Hedge Funds Right About Range Resources Corp. (RRC)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 Range Resources Corp. (NYSE:RRC).

Range Resources Corp. (NYSE:RRC) has seen an increase in enthusiasm from smart money in recent months. RRC was in 29 hedge funds’ portfolios at the end of December. There were 27 hedge funds in our database with RRC positions at the end of the previous quarter. Our calculations also showed that RRC 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).

SAC CAPITAL ADVISORS

Steven Cohen of Point72 Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. 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 we’re going to take a look at the key hedge fund action regarding Range Resources Corp. (NYSE:RRC).

What does smart money think about Range Resources Corp. (NYSE:RRC)?

At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RRC over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, SailingStone Capital Partners, managed by MacKenzie B. Davis and Kenneth L. Settles Jr, holds the number one position in Range Resources Corp. (NYSE:RRC). SailingStone Capital Partners has a $139.5 million position in the stock, comprising 32.2% of its 13F portfolio. The second largest stake is held by Kopernik Global Investors, led by David Iben, holding a $57.5 million position; 10.3% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions consist of Stephen Mildenhall’s Contrarius Investment Management, and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position SailingStone Capital Partners allocated the biggest weight to Range Resources Corp. (NYSE:RRC), around 32.18% of its 13F portfolio. Kopernik Global Investors is also relatively very bullish on the stock, dishing out 10.31 percent of its 13F equity portfolio to RRC.

As aggregate interest increased, some big names were leading the bulls’ herd. Contrarius Investment Management, managed by Stephen Mildenhall, created the most outsized position in Range Resources Corp. (NYSE:RRC). Contrarius Investment Management had $32.8 million invested in the company at the end of the quarter. Robert Pitts’s Steadfast Capital Management also initiated a $9.5 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Minhua Zhang’s Weld Capital Management, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Range Resources Corp. (NYSE:RRC). These stocks are Brigham Minerals, Inc. (NYSE:MNRL), Ferro Corporation (NYSE:FOE), DHT Holdings Inc (NYSE:DHT), and Materion Corp (NYSE:MTRN). This group of stocks’ market valuations are similar to RRC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MNRL 23 140394 9
FOE 16 159061 -1
DHT 34 259748 10
MTRN 18 108787 -1
Average 22.75 166998 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $334 million in RRC’s case. DHT Holdings Inc (NYSE:DHT) is the most popular stock in this table. On the other hand Ferro Corporation (NYSE:FOE) is the least popular one with only 16 bullish hedge fund positions. Range Resources Corp. (NYSE:RRC) 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on RRC as the stock returned 24.9% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
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.

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