Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Is Royal Gold, Inc (NASDAQ:RGLD) a splendid investment now? Investors who are in the know are getting more bullish. The number of long hedge fund positions moved up by 6 recently. Our calculations also showed that RGLD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). RGLD was in 25 hedge funds’ portfolios at the end of September. There were 19 hedge funds in our database with RGLD 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.
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.
Matthew Hulsizer of PEAK6 Capital
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the new hedge fund action surrounding Royal Gold, Inc (NASDAQ:RGLD).
Hedge fund activity in Royal Gold, Inc (NASDAQ:RGLD)
At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 32% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in RGLD a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Royal Gold, Inc (NASDAQ:RGLD), with a stake worth $42.7 million reported as of the end of September. Trailing Renaissance Technologies was PEAK6 Capital Management, which amassed a stake valued at $30.6 million. Horizon Asset Management, AQR Capital Management, and Winton Capital Management 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 Sprott Asset Management allocated the biggest weight to Royal Gold, Inc (NASDAQ:RGLD), around 0.93% of its portfolio. Horizon Asset Management is also relatively very bullish on the stock, dishing out 0.86 percent of its 13F equity portfolio to RGLD.
Consequently, key money managers have been driving this bullishness. D E Shaw, managed by David E. Shaw, initiated the most valuable call position in Royal Gold, Inc (NASDAQ:RGLD). D E Shaw had $4.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $1.7 million position during the quarter. The other funds with brand new RGLD positions are Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors, Donald Sussman’s Paloma Partners, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Royal Gold, Inc (NASDAQ:RGLD) but similarly valued. We will take a look at Sensata Technologies Holding plc (NYSE:ST), ABIOMED, Inc. (NASDAQ:ABMD), Pool Corporation (NASDAQ:POOL), and Vedanta Ltd (NYSE:VEDL). This group of stocks’ market caps are closest to RGLD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ST | 20 | 1377652 | -1 |
| ABMD | 21 | 580988 | -7 |
| POOL | 26 | 402099 | 4 |
| VEDL | 10 | 55913 | 2 |
| Average | 19.25 | 604163 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $604 million. That figure was $127 million in RGLD’s case. Pool Corporation (NASDAQ:POOL) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 10 bullish hedge fund positions. Royal Gold, Inc (NASDAQ:RGLD) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately RGLD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RGLD were disappointed as the stock returned -4.6% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
