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. Keeping this in mind, let’s take a look at whether Dr. Reddy’s Laboratories Limited (NYSE:RDY) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Dr. Reddy’s Laboratories Limited (NYSE:RDY) a healthy stock for your portfolio? Investors who are in the know are becoming less confident. The number of long hedge fund bets were trimmed by 1 lately. Our calculations also showed that RDY 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). RDY was in 12 hedge funds’ portfolios at the end of December. There were 13 hedge funds in our database with RDY holdings at the end of the previous quarter.
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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Gifford Combs of Dalton Investments
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. Keeping this in mind let’s check out the latest hedge fund action surrounding Dr. Reddy’s Laboratories Limited (NYSE:RDY).
How have hedgies been trading Dr. Reddy’s Laboratories Limited (NYSE:RDY)?
Heading into the first quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RDY over the last 18 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies has the number one position in Dr. Reddy’s Laboratories Limited (NYSE:RDY), worth close to $69.3 million, amounting to 0.1% of its total 13F portfolio. On Renaissance Technologies’s heels is AQR Capital Management, managed by Cliff Asness, which holds a $13.3 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish comprise D. E. Shaw’s D E Shaw, Paul Marshall and Ian Wace’s Marshall Wace LLP and Gifford Combs’s Dalton Investments. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to Dr. Reddy’s Laboratories Limited (NYSE:RDY), around 1.96% of its 13F portfolio. Qtron Investments is also relatively very bullish on the stock, setting aside 0.72 percent of its 13F equity portfolio to RDY.
Because Dr. Reddy’s Laboratories Limited (NYSE:RDY) has faced declining sentiment from hedge fund managers, it’s easy to see that there exists a select few funds who were dropping their positions entirely by the end of the third quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group sold off the biggest position of all the hedgies followed by Insider Monkey, totaling close to $0.6 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to Dr. Reddy’s Laboratories Limited (NYSE:RDY). We will take a look at Americold Realty Trust (NYSE:COLD), New Residential Investment Corp (NYSE:NRZ), Leggett & Platt, Inc. (NYSE:LEG), and Grupo Aeroportuario del Pacifico (NYSE:PAC). This group of stocks’ market values match RDY’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COLD | 26 | 360194 | -5 |
| NRZ | 23 | 129808 | 3 |
| LEG | 27 | 101609 | 15 |
| PAC | 7 | 144956 | 4 |
| Average | 20.75 | 184142 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $110 million in RDY’s case. Leggett & Platt, Inc. (NYSE:LEG) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico (NYSE:PAC) is the least popular one with only 7 bullish hedge fund positions. Dr. Reddy’s Laboratories Limited (NYSE:RDY) 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on RDY as the stock returned -12% during the same time period and outperformed the market by an even larger margin.
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.
