We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Dr. Reddy’s Laboratories Limited (NYSE:RDY).
Is Dr. Reddy’s Laboratories Limited (NYSE:RDY) the right investment to pursue these days? Investors who are in the know are getting more optimistic. The number of bullish hedge fund bets rose by 2 lately. Our calculations also showed that RDY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). RDY was in 13 hedge funds’ portfolios at the end of the third quarter of 2019. There were 11 hedge funds in our database with RDY positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the latest hedge fund action surrounding Dr. Reddy’s Laboratories Limited (NYSE:RDY).
How have hedgies been trading Dr. Reddy’s Laboratories Limited (NYSE:RDY)?
Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in RDY a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Dr. Reddy’s Laboratories Limited (NYSE:RDY) was held by Renaissance Technologies, which reported holding $56 million worth of stock at the end of September. It was followed by AQR Capital Management with a $12 million position. Other investors bullish on the company included D E Shaw, Dalton Investments, and Marshall Wace. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Dr. Reddy’s Laboratories Limited (NYSE:RDY), around 3.72% of its 13F portfolio. Qtron Investments is also relatively very bullish on the stock, designating 0.71 percent of its 13F equity portfolio to RDY.
As industrywide interest jumped, key hedge funds have jumped into Dr. Reddy’s Laboratories Limited (NYSE:RDY) headfirst. Marshall Wace, managed by Paul Marshall and Ian Wace, created the most valuable position in Dr. Reddy’s Laboratories Limited (NYSE:RDY). Marshall Wace had $5.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $2.2 million investment in the stock during the quarter. The other funds with brand new RDY positions are Steve Cohen’s Point72 Asset Management and Donald Sussman’s Paloma Partners.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Dr. Reddy’s Laboratories Limited (NYSE:RDY) but similarly valued. These stocks are The Madison Square Garden Company (NASDAQ:MSG), Morningstar, Inc. (NASDAQ:MORN), Encompass Health Corporation (NYSE:EHC), and People’s United Financial, Inc. (NASDAQ:PBCT). This group of stocks’ market values resemble RDY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MSG | 45 | 1729215 | -5 |
| MORN | 24 | 258250 | 4 |
| EHC | 22 | 423218 | -1 |
| PBCT | 21 | 140867 | 3 |
| Average | 28 | 637888 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $638 million. That figure was $95 million in RDY’s case. The Madison Square Garden Company (NASDAQ:MSG) is the most popular stock in this table. On the other hand People’s United Financial, Inc. (NASDAQ:PBCT) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Dr. Reddy’s Laboratories Limited (NYSE:RDY) is even less popular than PBCT. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on RDY, though not to the same extent, as the stock returned 7.5% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
