Is NatWest Group plc (NWG) Going to Burn These Hedge Funds?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards NatWest Group plc (NYSE:NWG).

Is NatWest Group plc (NYSE:NWG) the right pick for your portfolio? Hedge funds were getting more optimistic. The number of long hedge fund bets inched up by 3 in recent months. NatWest Group plc (NYSE:NWG) was in 6 hedge funds’ portfolios at the end of March. The all time high for this statistic is 10. Our calculations also showed that NWG isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s take a gander at the key hedge fund action surrounding NatWest Group plc (NYSE:NWG).

Do Hedge Funds Think NWG Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NWG over the last 23 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the most valuable position in NatWest Group plc (NYSE:NWG). Renaissance Technologies has a $2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $1.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass John Overdeck and David Siegel’s Two Sigma Advisors, and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to NatWest Group plc (NYSE:NWG), around 0.0025% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, setting aside 0.0019 percent of its 13F equity portfolio to NWG.

As aggregate interest increased, some big names have jumped into NatWest Group plc (NYSE:NWG) headfirst. Renaissance Technologies, established the largest position in NatWest Group plc (NYSE:NWG). Renaissance Technologies had $2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $1.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Griffin’s Citadel Investment Group and Ken Griffin’s Citadel Investment Group.

Let’s now take a look at hedge fund activity in other stocks similar to NatWest Group plc (NYSE:NWG). These stocks are McKesson Corporation (NYSE:MCK), AutoZone, Inc. (NYSE:AZO), The Trade Desk, Inc. (NASDAQ:TTD), Rockwell Automation Inc. (NYSE:ROK), Delta Air Lines, Inc. (NYSE:DAL), Nutrien Ltd. (NYSE:NTR), and Xilinx, Inc. (NASDAQ:XLNX). This group of stocks’ market valuations resemble NWG’s market valuation.

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As you can see these stocks had an average of 40.9 hedge funds with bullish positions and the average amount invested in these stocks was $1387 million. That figure was $4 million in NWG’s case. Xilinx, Inc. (NASDAQ:XLNX) is the most popular stock in this table. On the other hand Rockwell Automation Inc. (NYSE:ROK) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks NatWest Group plc (NYSE:NWG) is even less popular than ROK. Our overall hedge fund sentiment score for NWG is 26. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th but managed to beat the market by 4.8 percentage points. A small number of hedge funds were also right about betting on NWG, though not to the same extent, as the stock returned 7.8% since the end of March (through June 25th) and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.