Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Royal Bank of Canada (NYSE:RY) based on that data.
Royal Bank of Canada (NYSE:RY) has experienced an increase in activity from the world’s largest hedge funds recently. RY was in 20 hedge funds’ portfolios at the end of December. There were 19 hedge funds in our database with RY holdings at the end of the previous quarter. Our calculations also showed that RY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
Ken Griffin of Citadel Investment Group
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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to take a gander at the new hedge fund action surrounding Royal Bank of Canada (NYSE:RY).
What have hedge funds been doing with Royal Bank of Canada (NYSE:RY)?
At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the third quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in RY a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Royal Bank of Canada (NYSE:RY), which was worth $83.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $75.7 million worth of shares. Bridgewater Associates, D E Shaw, and GLG Partners 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 Heathbridge Capital Management allocated the biggest weight to Royal Bank of Canada (NYSE:RY), around 2.27% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, dishing out 0.98 percent of its 13F equity portfolio to RY.
Consequently, specific money managers have jumped into Royal Bank of Canada (NYSE:RY) headfirst. Millennium Management, managed by Israel Englander, assembled the biggest position in Royal Bank of Canada (NYSE:RY). Millennium Management had $26 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $3.9 million investment in the stock during the quarter. The following funds were also among the new RY investors: Alec Litowitz and Ross Laser’s Magnetar Capital, Claes Fornell’s CSat Investment Advisory, and Matthew Tewksbury’s Stevens Capital Management.
Let’s check out hedge fund activity in other stocks similar to Royal Bank of Canada (NYSE:RY). We will take a look at Lockheed Martin Corporation (NYSE:LMT), Danaher Corporation (NYSE:DHR), Charter Communications, Inc. (NASDAQ:CHTR), and Starbucks Corporation (NASDAQ:SBUX). This group of stocks’ market caps match RY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LMT | 47 | 1777473 | -4 |
| DHR | 61 | 2354152 | -1 |
| CHTR | 65 | 9013923 | -5 |
| SBUX | 66 | 5063838 | 7 |
| Average | 59.75 | 4552347 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 59.75 hedge funds with bullish positions and the average amount invested in these stocks was $4552 million. That figure was $337 million in RY’s case. Starbucks Corporation (NASDAQ:SBUX) is the most popular stock in this table. On the other hand Lockheed Martin Corporation (NYSE:LMT) is the least popular one with only 47 bullish hedge fund positions. Compared to these stocks Royal Bank of Canada (NYSE:RY) is even less popular than LMT. Hedge funds dodged a bullet by taking a bearish stance towards RY. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately RY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RY investors were disappointed as the stock returned -18.3% during the same time period 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 most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
