Were Hedge Funds Right About Souring On Raytheon Technologies Corp (RTX)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Raytheon Technologies Corp (NYSE:RTX).

Raytheon Technologies Corp (NYSE:RTX) was in 59 hedge funds’ portfolios at the end of June. The all time high for this statistics is 81. RTX investors should be aware of a decrease in hedge fund interest lately. There were 62 hedge funds in our database with RTX positions at the end of the first quarter. Our calculations also showed that RTX isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Eashwar Krishnan of Tybourne Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let’s go over the fresh hedge fund action surrounding Raytheon Technologies Corp (NYSE:RTX).

Hedge fund activity in Raytheon Technologies Corp (NYSE:RTX)

At Q2’s end, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RTX over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Soroban Capital Partners was the largest shareholder of Raytheon Technologies Corp (NYSE:RTX), with a stake worth $761.4 million reported as of the end of September. Trailing Soroban Capital Partners was Third Point, which amassed a stake valued at $324.4 million. Fisher Asset Management, OZ Management, and Adage Capital 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 Soroban Capital Partners allocated the biggest weight to Raytheon Technologies Corp (NYSE:RTX), around 9.75% of its 13F portfolio. Third Point is also relatively very bullish on the stock, dishing out 4.44 percent of its 13F equity portfolio to RTX.

Since Raytheon Technologies Corp (NYSE:RTX) has faced declining sentiment from hedge fund managers, we can see that there exists a select few fund managers who were dropping their positions entirely in the second quarter. It’s worth mentioning that Benjamin A. Smith’s Laurion Capital Management dropped the biggest investment of all the hedgies monitored by Insider Monkey, worth about $389.1 million in stock, and Nicolai Tangen’s Ako Capital was right behind this move, as the fund sold off about $281.4 million worth. These transactions are important to note, as total hedge fund interest was cut by 3 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Raytheon Technologies Corp (NYSE:RTX). These stocks are 3M Company (NYSE:MMM), British American Tobacco plc (NYSE:BTI), Starbucks Corporation (NASDAQ:SBUX), CVS Health Corporation (NYSE:CVS), Sony Corporation (NYSE:SNE), HDFC Bank Limited (NYSE:HDB), and Fidelity National Information Services Inc. (NYSE:FIS). This group of stocks’ market caps resemble RTX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.4 hedge funds with bullish positions and the average amount invested in these stocks was $2233 million. That figure was $2952 million in RTX’s case. Fidelity National Information Services Inc. (NYSE:FIS) 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 11 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 47.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately RTX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RTX were disappointed as the stock returned 1% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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