Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Ryerson Holding Corporation (NYSE:RYI) has seen a decrease in enthusiasm from smart money in recent months. RYI was in 13 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with RYI positions at the end of the previous quarter. Our calculations also showed that RYI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a gander at the fresh hedge fund action surrounding Ryerson Holding Corporation (NYSE:RYI).
How have hedgies been trading Ryerson Holding Corporation (NYSE:RYI)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RYI over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Ryerson Holding Corporation (NYSE:RYI). AQR Capital Management has a $4.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is D E Shaw, led by David E. Shaw, holding a $3.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that are bullish contain Jonathan Barrett and Paul Segal’s Luminus Management, Roger Ibbotson’s Zebra Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Ryerson Holding Corporation (NYSE:RYI), around 0.55% of its 13F portfolio. HighVista Strategies is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to RYI.
Seeing as Ryerson Holding Corporation (NYSE:RYI) has experienced a decline in interest from the smart money, it’s easy to see that there is a sect of hedgies that slashed their entire stakes in the third quarter. It’s worth mentioning that David Harding’s Winton Capital Management dropped the biggest investment of all the hedgies tracked by Insider Monkey, worth close to $0.7 million in stock. Renaissance Technologies, also dropped its stock, about $0.4 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Ryerson Holding Corporation (NYSE:RYI). These stocks are Pulse Biosciences, Inc (NASDAQ:PLSE), Titan Machinery Inc. (NASDAQ:TITN), American Outdoor Brands Corporation (NASDAQ:AOBC), and Fluidigm Corporation (NASDAQ:FLDM). This group of stocks’ market values are closest to RYI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLSE | 1 | 232 | 0 |
| TITN | 14 | 20329 | -4 |
| AOBC | 17 | 51290 | 1 |
| FLDM | 20 | 89529 | 3 |
| Average | 13 | 40345 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $11 million in RYI’s case. Fluidigm Corporation (NASDAQ:FLDM) is the most popular stock in this table. On the other hand Pulse Biosciences, Inc (NASDAQ:PLSE) is the least popular one with only 1 bullish hedge fund positions. Ryerson Holding Corporation (NYSE:RYI) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on RYI as the stock returned 25% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
