Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 5 months of this year through May 30th the Standard and Poor’s 500 Index returned approximately 12.1% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Raymond James Financial, Inc. (NYSE:RJF).
Raymond James Financial, Inc. (NYSE:RJF) shareholders have witnessed an increase in hedge fund sentiment in recent months. RJF was in 35 hedge funds’ portfolios at the end of the first quarter of 2019. There were 25 hedge funds in our database with RJF positions at the end of the previous quarter. Our calculations also showed that RJF isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let’s view the latest hedge fund action surrounding Raymond James Financial, Inc. (NYSE:RJF).
What have hedge funds been doing with Raymond James Financial, Inc. (NYSE:RJF)?
At Q1’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RJF over the last 15 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Raymond James Financial, Inc. (NYSE:RJF) was held by Brave Warrior Capital, which reported holding $197.8 million worth of stock at the end of March. It was followed by Millennium Management with a $131.1 million position. Other investors bullish on the company included Fisher Asset Management, Balyasny Asset Management, and East Side Capital (RR Partners).
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in Raymond James Financial, Inc. (NYSE:RJF). Balyasny Asset Management had $86.6 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also initiated a $27.3 million position during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Daniel Johnson’s Gillson Capital, and Brandon Haley’s Holocene Advisors.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Raymond James Financial, Inc. (NYSE:RJF) but similarly valued. These stocks are Regency Centers Corp (NASDAQ:REG), Zebra Technologies Corporation (NASDAQ:ZBRA), Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), and Kohl’s Corporation (NYSE:KSS). This group of stocks’ market values match RJF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| REG | 17 | 397323 | 2 |
| ZBRA | 35 | 1101221 | 6 |
| IONS | 22 | 236032 | 1 |
| KSS | 27 | 1188592 | 0 |
| Average | 25.25 | 730792 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $731 million. That figure was $795 million in RJF’s case. Zebra Technologies Corporation (NASDAQ:ZBRA) is the most popular stock in this table. On the other hand Regency Centers Corp (NASDAQ:REG) is the least popular one with only 17 bullish hedge fund positions. Raymond James Financial, Inc. (NYSE:RJF) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on RJF as the stock returned 5.1% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
