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Did Hedge Funds Drop The Ball On Rayonier Advanced Materials Inc (RYAM) ?

Nina Todic

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 Peltz's recent General Electric 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 Rayonier Advanced Materials Inc (NYSE:RYAM).

Rayonier Advanced Materials Inc (NYSE:RYAM) shareholders have witnessed a decrease in support from the world's most elite money managers recently. Our calculations also showed that ryam isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

RichardMcGuire_MarcatoCapitalManagement
RichardMcGuire_MarcatoCapitalManagement

Let's take a look at the recent hedge fund action encompassing Rayonier Advanced Materials Inc (NYSE:RYAM).

How are hedge funds trading Rayonier Advanced Materials Inc (NYSE:RYAM)?

At Q4's end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in RYAM over the last 14 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

No of Hedge Funds with RYAM Positions
No of Hedge Funds with RYAM Positions

More specifically, Renaissance Technologies was the largest shareholder of Rayonier Advanced Materials Inc (NYSE:RYAM), with a stake worth $40.8 million reported as of the end of December. Trailing Renaissance Technologies was Marcato Capital Management, which amassed a stake valued at $25 million. Adage Capital Management, Ancora Advisors, and Rubric Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Since Rayonier Advanced Materials Inc (NYSE:RYAM) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of fund managers that elected to cut their full holdings in the third quarter. At the top of the heap, David Rosen's Rubric Capital Management dumped the largest stake of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $11.4 million in stock, and George McCabe's Portolan Capital Management was right behind this move, as the fund sold off about $5.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 4 funds in the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Rayonier Advanced Materials Inc (NYSE:RYAM) but similarly valued. These stocks are Sabine Royalty Trust (NYSE:SBR), United Natural Foods, Inc. (NYSE:UNFI), Green Plains Inc. (NASDAQ:GPRE), and Primo Water Corporation (NASDAQ:PRMW). This group of stocks' market caps resemble RYAM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBR,6,18768,-1 UNFI,15,105716,-6 GPRE,14,116211,1 PRMW,14,138113,-2 Average,12.25,94702,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $103 million in RYAM's case. United Natural Foods, Inc. (NYSE:UNFI) is the most popular stock in this table. On the other hand Sabine Royalty Trust (NYSE:SBR) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Rayonier Advanced Materials Inc (NYSE:RYAM) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on RYAM as the stock returned 38% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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