Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Raytheon Technologies Corp (NYSE:RTX)? The smart money sentiment can provide an answer to this question.
Is Raytheon Technologies (RTX) a good stock to buy now? Investors who are in the know were in a pessimistic mood. The number of long hedge fund positions retreated by 4 in recent months. Raytheon Technologies Corp (NYSE:RTX) was in 55 hedge funds’ portfolios at the end of September. The all time high for this statistics is 81. Our calculations also showed that RTX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most shareholders, hedge funds are perceived as slow, outdated investment tools of years past. While there are greater than 8000 funds with their doors open today, Our researchers choose to focus on the upper echelon of this group, approximately 850 funds. These investment experts preside over bulk of the smart money’s total asset base, and by observing their highest performing equity investments, Insider Monkey has come up with numerous investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
Matthew Halbower of Pentwater Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind let’s review the recent hedge fund action regarding Raytheon Technologies Corp (NYSE:RTX).
How have hedgies been trading Raytheon Technologies Corp (NYSE:RTX)?
At Q3’s end, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in RTX over the last 21 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners has the most valuable position in Raytheon Technologies Corp (NYSE:RTX), worth close to $801.5 million, comprising 8.1% of its total 13F portfolio. Sitting at the No. 2 spot is Viking Global, led by Andreas Halvorsen, holding a $353.7 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism contain Ken Fisher’s Fisher Asset Management, D. E. Shaw’s D E Shaw and Daniel S. Och’s OZ Management. In terms of the portfolio weights assigned to each position Soroban Capital Partners allocated the biggest weight to Raytheon Technologies Corp (NYSE:RTX), around 8.08% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, dishing out 5.53 percent of its 13F equity portfolio to RTX.
Seeing as Raytheon Technologies Corp (NYSE:RTX) has faced declining sentiment from the smart money, it’s easy to see that there is a sect of money managers that slashed their full holdings in the third quarter. Interestingly, Dan Loeb’s Third Point dropped the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $324.4 million in stock, and Eashwar Krishnan’s Tybourne Capital Management was right behind this move, as the fund cut about $130.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Raytheon Technologies Corp (NYSE:RTX). We will take a look at S&P Global Inc. (NYSE:SPGI), BlackRock, Inc. (NYSE:BLK), Intuit Inc. (NASDAQ:INTU), Toronto-Dominion Bank (NYSE:TD), Intuitive Surgical, Inc. (NASDAQ:ISRG), British American Tobacco plc (NYSE:BTI), and Mondelez International Inc (NASDAQ:MDLZ). This group of stocks’ market caps resemble RTX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPGI | 71 | 3030583 | 0 |
| BLK | 39 | 922746 | 2 |
| INTU | 54 | 1822831 | 1 |
| TD | 15 | 97067 | 0 |
| ISRG | 50 | 1351177 | 7 |
| BTI | 7 | 702239 | -4 |
| MDLZ | 50 | 2674878 | -4 |
| Average | 40.9 | 1514503 | 0.3 |
View table here if you experience formatting issues.
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 $1515 million. That figure was $2989 million in RTX’s case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 7 bullish hedge fund positions. Raytheon Technologies Corp (NYSE:RTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RTX is 58.9. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on RTX as the stock returned 25.9% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
