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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether ResMed Inc. (NYSE:RMD) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Is ResMed Inc. (NYSE:RMD) the right investment to pursue these days? Hedge funds are in a bearish mood. The number of long hedge fund bets dropped by 2 recently. Our calculations also showed that RMD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). RMD was in 21 hedge funds’ portfolios at the end of December. There were 23 hedge funds in our database with RMD holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Paul Marshall of Marshall Wace
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. Now let’s take a peek at the key hedge fund action regarding ResMed Inc. (NYSE:RMD).
How are hedge funds trading ResMed Inc. (NYSE:RMD)?
At the end of the fourth quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in RMD a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ResMed Inc. (NYSE:RMD) was held by AQR Capital Management, which reported holding $44.6 million worth of stock at the end of September. It was followed by Adage Capital Management with a $26 million position. Other investors bullish on the company included Motley Fool Asset Management, Renaissance Technologies, and Winton Capital Management. In terms of the portfolio weights assigned to each position Motley Fool Asset Management allocated the biggest weight to ResMed Inc. (NYSE:RMD), around 2.53% of its 13F portfolio. Aubrey Capital Management is also relatively very bullish on the stock, dishing out 2.11 percent of its 13F equity portfolio to RMD.
Seeing as ResMed Inc. (NYSE:RMD) has experienced bearish sentiment from the smart money, logic holds that there exists a select few funds that elected to cut their full holdings in the third quarter. It’s worth mentioning that Lee Ainslie’s Maverick Capital said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $7.7 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $2.1 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to ResMed Inc. (NYSE:RMD). We will take a look at Dollar Tree, Inc. (NASDAQ:DLTR), American Water Works Company, Inc. (NYSE:AWK), Fresenius Medical Care AG & Co. (NYSE:FMS), and Corteva, Inc. (NYSE:CTVA). This group of stocks’ market values are similar to RMD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DLTR | 51 | 1620166 | -1 |
| AWK | 29 | 625913 | -11 |
| FMS | 11 | 13249 | 6 |
| CTVA | 27 | 676056 | -10 |
| Average | 29.5 | 733846 | -4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $734 million. That figure was $172 million in RMD’s case. Dollar Tree, Inc. (NASDAQ:DLTR) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. (NYSE:FMS) is the least popular one with only 11 bullish hedge fund positions. ResMed Inc. (NYSE:RMD) is not the least popular stock in this group but hedge fund interest is still below average. 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 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on RMD as the stock returned -0.7% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
