Reynolds American, Inc. (NYSE:RAI) has experienced a decrease in support from the world’s most elite money managers of late.
In the eyes of most investors, hedge funds are viewed as worthless, old investment vehicles of the past. While there are more than 8000 funds with their doors open at the moment, we choose to focus on the elite of this club, about 450 funds. It is estimated that this group has its hands on the lion’s share of the smart money’s total capital, and by keeping an eye on their top stock picks, we have discovered a number of investment strategies that have historically outstripped the market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).
Equally as important, bullish insider trading activity is a second way to parse down the world of equities. There are plenty of reasons for an executive to get rid of shares of his or her company, but only one, very obvious reason why they would buy. Plenty of empirical studies have demonstrated the market-beating potential of this strategy if “monkeys” understand what to do (learn more here).
Keeping this in mind, we’re going to take a look at the recent action encompassing Reynolds American, Inc. (NYSE:RAI).
What have hedge funds been doing with Reynolds American, Inc. (NYSE:RAI)?
In preparation for this quarter, a total of 15 of the hedge funds we track were long in this stock, a change of -17% from one quarter earlier. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably.
When looking at the hedgies we track, David Winters’s Wintergreen Advisers had the biggest position in Reynolds American, Inc. (NYSE:RAI), worth close to $91 million, accounting for 10% of its total 13F portfolio. On Wintergreen Advisers’s heels is Jim Simons of Renaissance Technologies, with a $62.8 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining hedgies with similar optimism include David Harding’s Winton Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Cliff Asness’s AQR Capital Management.
Due to the fact that Reynolds American, Inc. (NYSE:RAI) has faced a declination in interest from the smart money, logic holds that there was a specific group of hedgies who were dropping their full holdings last quarter. Intriguingly, Steven Cohen’s SAC Capital Advisors dumped the largest position of the 450+ funds we track, worth about $14.6 million in stock., and Jacob Gottlieb of Visium Asset Management was right behind this move, as the fund dumped about $5.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 3 funds last quarter.
What do corporate executives and insiders think about Reynolds American, Inc. (NYSE:RAI)?
Insider buying is most useful when the primary stock in question has experienced transactions within the past six months. Over the latest 180-day time frame, Reynolds American, Inc. (NYSE:RAI) has seen zero unique insiders purchasing, and 15 insider sales (see the details of insider trades here).
Let’s also take a look at hedge fund and insider activity in other stocks similar to Reynolds American, Inc. (NYSE:RAI). These stocks are Vector Group Ltd (NYSE:VGR), Philip Morris International Inc. (NYSE:PM), British American Tobacco PLC (ADR) (NYSEAMEX:BTI), Altria Group Inc (NYSE:MO), and Lorillard Inc. (NYSE:LO). This group of stocks are the members of the cigarettes industry and their market caps resemble RAI’s market cap.
| Company Name | # of Hedge Funds | # of Insiders Buying | # of Insiders Selling |
| Vector Group Ltd (NYSE:VGR) | 8 | 1 | 3 |
| Philip Morris International Inc. (NYSE:PM) | 49 | 1 | 7 |
| British American Tobacco PLC (ADR) (NYSEAMEX:BTI) | 10 | 0 | 0 |
| Altria Group Inc (NYSE:MO) | 30 | 0 | 3 |
| Lorillard Inc. (NYSE:LO) | 24 | 0 | 5 |
With the results exhibited by Insider Monkey’s strategies, retail investors should always pay attention to hedge fund and insider trading sentiment, and Reynolds American, Inc. (NYSE:RAI) is no exception.
