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Were Hedge Funds Right About Selling Rayonier Inc. (RYN)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Rayonier Inc. (NYSE:RYN) based on that data and determine whether they were really smart about the stock.

Is Rayonier Inc. (NYSE:RYN) a buy, sell, or hold? Investors who are in the know were in a pessimistic mood. The number of bullish hedge fund positions were trimmed by 1 in recent months. Our calculations also showed that RYN 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). RYN was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. There were 14 hedge funds in our database with RYN holdings at the end of the previous quarter.

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 18 cities with the best air quality to identify emerging trends that are likely to lead to 1000% gains in the coming years. 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. Now we’re going to take a glance at the fresh hedge fund action encompassing Rayonier Inc. (NYSE:RYN).

How have hedgies been trading Rayonier Inc. (NYSE:RYN)?

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in RYN a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is RYN A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Ian Simm’s Impax Asset Management has the largest position in Rayonier Inc. (NYSE:RYN), worth close to $125.4 million, corresponding to 1.7% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $93 million position; 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish consist of Martin Whitman’s Third Avenue Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and David Harding’s Winton Capital Management. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to Rayonier Inc. (NYSE:RYN), around 4.26% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, dishing out 1.67 percent of its 13F equity portfolio to RYN.

Judging by the fact that Rayonier Inc. (NYSE:RYN) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of funds that elected to cut their entire stakes heading into Q4. Intriguingly, Israel Englander’s Millennium Management dumped the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $9 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund cut about $5.6 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Rayonier Inc. (NYSE:RYN). We will take a look at Community Bank System, Inc. (NYSE:CBU), MSC Industrial Direct Co Inc (NYSE:MSM), SLM Corp (NASDAQ:SLM), and Grupo Aeroportuario del Pacifico (NYSE:PAC). This group of stocks’ market values match RYN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBU 11 12275 1
MSM 23 240052 -7
SLM 27 430376 -12
PAC 5 66063 -2
Average 16.5 187192 -5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $187 million. That figure was $272 million in RYN’s case. SLM Corp (NASDAQ:SLM) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico (NYSE:PAC) is the least popular one with only 5 bullish hedge fund positions. Rayonier Inc. (NYSE:RYN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately RYN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RYN investors were disappointed as the stock returned 4.9% during the second quarter 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 in 2020.

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