It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Raytheon Company (NYSE:RTN).
Is Raytheon Company (NYSE:RTN) a cheap investment right now? Hedge funds are turning bullish. The number of long hedge fund bets inched up by 10 in recent months. Our calculations also showed that RTN isn’t among the 30 most popular stocks among hedge funds (click for Q3 ranking, see the video below for Q2 rankings). RTN was in 49 hedge funds’ portfolios at the end of September. There were 39 hedge funds in our database with RTN 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.
Jeffrey Tannenbaum of Fir Tree
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 look at the recent hedge fund action surrounding Raytheon Company (NYSE:RTN).
How have hedgies been trading Raytheon Company (NYSE:RTN)?
Heading into the fourth quarter of 2019, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RTN over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in Raytheon Company (NYSE:RTN) was held by Soroban Capital Partners, which reported holding $855.1 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $529.8 million position. Other investors bullish on the company included Two Sigma Advisors, Sculptor Capital, and Holocene Advisors. In terms of the portfolio weights assigned to each position Soroban Capital Partners allocated the biggest weight to Raytheon Company (NYSE:RTN), around 12.03% of its portfolio. TOMS Capital is also relatively very bullish on the stock, earmarking 7.76 percent of its 13F equity portfolio to RTN.
As industrywide interest jumped, some big names have been driving this bullishness. Sculptor Capital, managed by Daniel S. Och (founder), initiated the biggest position in Raytheon Company (NYSE:RTN). Sculptor Capital had $240.5 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $183.2 million position during the quarter. The following funds were also among the new RTN investors: Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management, Zach Schreiber’s Point State Capital, and Jeffrey Tannenbaum’s Fir Tree.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Raytheon Company (NYSE:RTN) but similarly valued. We will take a look at Target Corporation (NYSE:TGT), General Motors Company (NYSE:GM), Takeda Pharmaceutical Company Limited (NYSE:TAK), and Prologis Inc (NYSE:PLD). This group of stocks’ market caps resemble RTN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TGT | 53 | 2073012 | 16 |
| GM | 68 | 6375993 | 19 |
| TAK | 28 | 1243754 | 1 |
| PLD | 27 | 360500 | 3 |
| Average | 44 | 2513315 | 9.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $2513 million. That figure was $3255 million in RTN’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Prologis Inc (NYSE:PLD) is the least popular one with only 27 bullish hedge fund positions. Raytheon Company (NYSE:RTN) 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on RTN as the stock returned 10.8% during the fourth quarter (through 11/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
