Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Royal Caribbean Cruises Ltd. (NYSE:RCL) changed recently.
Royal Caribbean Cruises Ltd. (NYSE:RCL) has experienced a decrease in hedge fund interest in recent months. Our calculations also showed that RCL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Aaron Cowen of Suvretta Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to view the new hedge fund action regarding Royal Caribbean Cruises Ltd. (NYSE:RCL).
How are hedge funds trading Royal Caribbean Cruises Ltd. (NYSE:RCL)?
At the end of the third quarter, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the previous quarter. On the other hand, there were a total of 42 hedge funds with a bullish position in RCL a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Royal Caribbean Cruises Ltd. (NYSE:RCL), which was worth $340.9 million at the end of the third quarter. On the second spot was Eminence Capital which amassed $202.2 million worth of shares. Arrowstreet Capital, Palestra Capital Management, and Renaissance Technologies 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 Anchor Bolt Capital allocated the biggest weight to Royal Caribbean Cruises Ltd. (NYSE:RCL), around 5.14% of its 13F portfolio. Palestra Capital Management is also relatively very bullish on the stock, dishing out 4.58 percent of its 13F equity portfolio to RCL.
Seeing as Royal Caribbean Cruises Ltd. (NYSE:RCL) has witnessed declining sentiment from hedge fund managers, logic holds that there exists a select few funds that decided to sell off their full holdings last quarter. It’s worth mentioning that Jacob Doft’s Highline Capital Management cut the biggest stake of all the hedgies followed by Insider Monkey, comprising close to $67.5 million in stock. Principal Global Investors’s fund, Columbus Circle Investors, also said goodbye to its stock, about $25.5 million worth. These moves are important to note, as total hedge fund interest dropped by 1 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Royal Caribbean Cruises Ltd. (NYSE:RCL) but similarly valued. We will take a look at KKR & Co Inc. (NYSE:KKR), Synchrony Financial (NYSE:SYF), Veeva Systems Inc (NYSE:VEEV), and American Water Works Company, Inc. (NYSE:AWK). This group of stocks’ market caps resemble RCL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KKR | 41 | 3227093 | 5 |
| SYF | 43 | 2375436 | -3 |
| VEEV | 33 | 1020379 | -2 |
| AWK | 35 | 652077 | 12 |
| Average | 38 | 1818746 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $1819 million. That figure was $1673 million in RCL’s case. Synchrony Financial (NYSE:SYF) is the most popular stock in this table. On the other hand Veeva Systems Inc (NYSE:VEEV) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks Royal Caribbean Cruises Ltd. (NYSE:RCL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on RCL, though not to the same extent, as the stock returned 39.8% during the same period and outperformed the market as well.
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.
