Is Royal Bank of Canada (USA) (RY) A Good Stock To Buy?

At Insider Monkey, we follow around 730 of the best-performing investors and even though many of them lost money in the last several months, the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.

Is Royal Bank of Canada (USA) (NYSE:RY) a healthy stock for your portfolio? The smart money is taking a pessimistic view. The number of bullish hedge fund positions were trimmed by 4 lately. Royal Bank of Canada (USA) (NYSE:RY) was in 17 hedge funds’ portfolios at the end of the third quarter of 2015. There were 21 hedge funds in our database with Royal Bank of Canada (USA) (NYSE:RY) positions at the end of the previous quarter. At the end of this article, we will also compare Royal Bank of Canada (USA) (NYSE:RY) to other stocks, including United Technologies Corporation (NYSE:UTX), SAP AG (ADR) (NYSE:SAP), and Ambev SA (ADR) (NYSE:ABEV) to get a better sense of its popularity.

In the eyes of most market participants, hedge funds are assumed to be worthless, old financial tools of the past. While there are more than 8000 funds trading today, We hone in on the masters of this club, around 700 funds. Most estimates calculate that this group of people commands the lion’s share of the smart money’s total asset base, and by tailing their finest investments, Insider Monkey has unsheathed several investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Keeping this in mind, we’re going to take a gander at the recent action surrounding Royal Bank of Canada (USA) (NYSE:RY).

How are hedge funds trading Royal Bank of Canada (USA) (NYSE:RY)?

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 19% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Tetrem Capital Management, managed by Daniel Bubis, holds the biggest position in Royal Bank of Canada (USA) (NYSE:RY). Tetrem Capital Management has a $208.9 million position in the stock, comprising 7.1% of its 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, led by Cliff Asness, holding a $123.1 million position; 0.2% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism contain Renaissance Technologies, Israel Englander’s Millennium Management, and Robert B. Gillam’s McKinley Capital Management.

Due to the fact that Royal Bank of Canada (USA) (NYSE:RY) has experienced falling interest from the smart money, it’s easy to see that there was a specific group of funds who sold off their positions entirely in the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest position of the 700 funds tracked by Insider Monkey, totaling about $10.8 million in stock. Peter Muller’s fund, PDT Partners, also cut its stock, about $2.6 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Royal Bank of Canada (USA) (NYSE:RY) but similarly valued. We will take a look at United Technologies Corporation (NYSE:UTX), SAP AG (ADR) (NYSE:SAP), Ambev SA (ADR) (NYSE:ABEV), and Union Pacific Corporation (NYSE:UNP). This group of stocks’ market valuations is closest to Royal Bank of Canada (USA) (NYSE:RY)’s market valuation.

As you can see, these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1.32 billion. That figure was $504 million in Royal Bank of Canada (USA) (NYSE:RY)’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand, SAP AG (ADR) (NYSE:SAP) is the least popular one with only 11 bullish hedge fund positions. Royal Bank of Canada (USA) (NYSE:RY) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, Union Pacific Corporation (NYSE:UNP) might be a better candidate to consider a long position.