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Were Hedge Funds Right About Shunning Raymond James Financial, Inc. (RJF)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Raymond James Financial, Inc. (NYSE:RJF) and determine whether hedge funds skillfully traded this stock.

Raymond James Financial, Inc. (NYSE:RJF) has experienced an increase in hedge fund sentiment in recent months. Our calculations also showed that RJF 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.

Glenn Greenberg

Glenn Greenberg of Brave Warrior Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let’s take a glance at the fresh hedge fund action regarding Raymond James Financial, Inc. (NYSE:RJF).

What have hedge funds been doing with Raymond James Financial, Inc. (NYSE:RJF)?

Heading into the second quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in RJF over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Brave Warrior Capital, managed by Glenn Greenberg, holds the most valuable position in Raymond James Financial, Inc. (NYSE:RJF). Brave Warrior Capital has a $141 million position in the stock, comprising 8.1% of its 13F portfolio. The second largest stake is held by Eminence Capital, managed by Ricky Sandler, which holds a $126.6 million position; the fund has 1.4% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish include Ken Fisher’s Fisher Asset Management, Steven Richman’s East Side Capital (RR Partners) and Andrew Kurita’s Kettle Hill Capital Management. In terms of the portfolio weights assigned to each position Brave Warrior Capital allocated the biggest weight to Raymond James Financial, Inc. (NYSE:RJF), around 8.12% of its 13F portfolio. East Side Capital (RR Partners) is also relatively very bullish on the stock, earmarking 6.82 percent of its 13F equity portfolio to RJF.

As industrywide interest jumped, some big names have been driving this bullishness. Kettle Hill Capital Management, managed by Andrew Kurita, established the most outsized position in Raymond James Financial, Inc. (NYSE:RJF). Kettle Hill Capital Management had $10.2 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $10 million investment in the stock during the quarter. The other funds with brand new RJF positions are Ben Gordon’s Blue Grotto Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and D. E. Shaw’s D E Shaw.

Let’s check out hedge fund activity in other stocks similar to Raymond James Financial, Inc. (NYSE:RJF). These stocks are The Trade Desk, Inc. (NASDAQ:TTD), Celanese Corporation (NYSE:CE), Black Knight, Inc. (NYSE:BKI), and Cypress Semiconductor Corporation (NASDAQ:CY). This group of stocks’ market valuations resemble RJF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TTD 25 393525 1
CE 29 509076 -2
BKI 32 372352 1
CY 46 2083415 10
Average 33 839592 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $840 million. That figure was $441 million in RJF’s case. Cypress Semiconductor Corporation (NASDAQ:CY) is the most popular stock in this table. On the other hand The Trade Desk, Inc. (NASDAQ:TTD) is the least popular one with only 25 bullish hedge fund positions. Raymond James Financial, Inc. (NYSE:RJF) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately RJF wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); RJF investors were disappointed as the stock returned 9.5% 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.