Rio Tinto Group (RIO): Hedge Funds De-risking

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Rio Tinto Group (NYSE:RIO).

Rio Tinto Group (NYSE:RIO) shareholders have witnessed a decrease in hedge fund sentiment in recent months. Our calculations also showed that RIO isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 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 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Donald Sussman of Paloma Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the fresh hedge fund action regarding Rio Tinto Group (NYSE:RIO).

What have hedge funds been doing with Rio Tinto Group (NYSE:RIO)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in RIO a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in Rio Tinto Group (NYSE:RIO), which was worth $507.5 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $257.3 million worth of shares. Citadel Investment Group, Renaissance Technologies, and Impala Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position JHL Capital Group allocated the biggest weight to Rio Tinto Group (NYSE:RIO), around 31.27% of its 13F portfolio. Impala Asset Management is also relatively very bullish on the stock, designating 9.17 percent of its 13F equity portfolio to RIO.

Due to the fact that Rio Tinto Group (NYSE:RIO) has faced a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of fund managers who sold off their full holdings by the end of the first quarter. Intriguingly, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners sold off the largest stake of the 750 funds monitored by Insider Monkey, comprising about $37.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also said goodbye to its stock, about $10 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Rio Tinto Group (NYSE:RIO) but similarly valued. These stocks are Zoetis Inc (NYSE:ZTS), Canadian National Railway Company (NYSE:CNI), Booking Holdings Inc. (NASDAQ:BKNG), and Biogen Inc. (NASDAQ:BIIB). This group of stocks’ market values are closest to RIO’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 61.5 hedge funds with bullish positions and the average amount invested in these stocks was $3198 million. That figure was $1108 million in RIO’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Rio Tinto Group (NYSE:RIO) is even less popular than CNI. Hedge funds clearly dropped the ball on RIO as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on RIO as the stock returned 26.1% so far in the second quarter and outperformed the market by an even larger margin.

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