We at Insider Monkey have gone over 730 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of June 28th. In this article, we look at what those funds think of Dr. Reddy's Laboratories Limited (NYSE:RDY) based on that data.
Dr. Reddy's Laboratories Limited (NYSE:RDY) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds' portfolios at the end of June. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Gentex Corporation (NASDAQ:GNTX), Phillips 66 Partners LP (NYSE:PSXP), and Morningstar, Inc. (NASDAQ:MORN) to gather more data points. Our calculations also showed that RDY isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to go over the latest hedge fund action encompassing Dr. Reddy's Laboratories Limited (NYSE:RDY).
How are hedge funds trading Dr. Reddy's Laboratories Limited (NYSE:RDY)?
Heading into the third quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in RDY over the last 16 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in Dr. Reddy's Laboratories Limited (NYSE:RDY) was held by Renaissance Technologies, which reported holding $44.9 million worth of stock at the end of March. It was followed by AQR Capital Management with a $13.8 million position. Other investors bullish on the company included Dalton Investments, D E Shaw, and Citadel Investment Group.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Two Sigma Advisors).
Let's also examine hedge fund activity in other stocks similar to Dr. Reddy's Laboratories Limited (NYSE:RDY). We will take a look at Gentex Corporation (NASDAQ:GNTX), Phillips 66 Partners LP (NYSE:PSXP), Morningstar, Inc. (NASDAQ:MORN), and Mellanox Technologies, Ltd. (NASDAQ:MLNX). All of these stocks' market caps are closest to RDY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GNTX,23,388264,0 PSXP,3,9904,-1 MORN,20,265985,-1 MLNX,39,1425612,-2 Average,21.25,522441,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $522 million. That figure was $81 million in RDY's case. Mellanox Technologies, Ltd. (NASDAQ:MLNX) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 3 bullish hedge fund positions. Dr. Reddy's Laboratories Limited (NYSE:RDY) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on RDY, though not to the same extent, as the stock returned 1.9% during the third quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.