We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Royal Gold, Inc (NASDAQ:RGLD).
Royal Gold, Inc (NASDAQ:RGLD) was in 30 hedge funds’ portfolios at the end of December. RGLD investors should pay attention to an increase in hedge fund interest recently. There were 27 hedge funds in our database with RGLD holdings at the end of the previous quarter. Our calculations also showed that RGLD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the fresh hedge fund action surrounding Royal Gold, Inc (NASDAQ:RGLD).
How are hedge funds trading Royal Gold, Inc (NASDAQ:RGLD)?
At Q4’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the third quarter of 2019. By comparison, 15 hedge funds held shares or bullish call options in RGLD a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Royal Gold, Inc (NASDAQ:RGLD), which was worth $48.8 million at the end of the third quarter. On the second spot was Horizon Asset Management which amassed $27 million worth of shares. Two Sigma Advisors, Winton Capital Management, and Citadel Investment Group 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 Horizon Asset Management allocated the biggest weight to Royal Gold, Inc (NASDAQ:RGLD), around 0.77% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, dishing out 0.72 percent of its 13F equity portfolio to RGLD.
Consequently, some big names have jumped into Royal Gold, Inc (NASDAQ:RGLD) headfirst. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the most outsized position in Royal Gold, Inc (NASDAQ:RGLD). Adage Capital Management had $6.1 million invested in the company at the end of the quarter. Joel Greenblatt’s Gotham Asset Management also made a $4.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Steve Cohen’s Point72 Asset Management, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Royal Gold, Inc (NASDAQ:RGLD) but similarly valued. These stocks are Genpact Limited (NYSE:G), Vedanta Ltd (NYSE:VEDL), Reliance Steel & Aluminum Co. (NYSE:RS), and Kohl’s Corporation (NYSE:KSS). 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 |
|---|---|---|---|
| G | 37 | 769167 | -1 |
| VEDL | 13 | 74538 | 2 |
| RS | 34 | 390307 | 10 |
| KSS | 28 | 405115 | -2 |
| Average | 28 | 409782 | 2.25 |
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 $410 million. That figure was $178 million in RGLD’s case. Genpact Limited (NYSE:G) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 13 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 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 -33.2% 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
