Hedge Funds Don’t Like The Royal Bank of Scotland Group plc (RBS) At All
Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards The Royal Bank of Scotland Group plc (NYSE:RBS).
The Royal Bank of Scotland Group plc (NYSE:RBS) shares haven't seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of the fourth quarter of 2019. At the end of this article we will also compare RBS to other stocks including AFLAC Incorporated (NYSE:AFL), Orange S.A. (NYSE:ORAN), and Valero Energy Corporation (NYSE:VLO) to get a better sense of its popularity.
Video: Click the image to 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 41 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.
[caption id="attachment_673876" align="aligncenter" width="399"]
John Overdeck of Two Sigma Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let's take a gander at the new hedge fund action encompassing The Royal Bank of Scotland Group plc (NYSE:RBS).
How are hedge funds trading The Royal Bank of Scotland Group plc (NYSE:RBS)?
At the end of the fourth quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 3 hedge funds with a bullish position in RBS 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.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the number one position in The Royal Bank of Scotland Group plc (NYSE:RBS). Renaissance Technologies has a $34.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $1.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism include Paul Marshall and Ian Wace's Marshall Wace LLP, Donald Sussman's Paloma Partners and Michael Gelband's ExodusPoint Capital. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to The Royal Bank of Scotland Group plc (NYSE:RBS), around 0.03% of its 13F portfolio. Paloma Partners is also relatively very bullish on the stock, earmarking 0.0041 percent of its 13F equity portfolio to RBS.
Judging by the fact that The Royal Bank of Scotland Group plc (NYSE:RBS) has experienced falling interest from the aggregate hedge fund industry, logic holds that there were a few funds that slashed their entire stakes by the end of the third quarter. Intriguingly, Ken Griffin's Citadel Investment Group cut the biggest stake of the 750 funds watched by Insider Monkey, totaling close to $0.2 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund said goodbye to about $0.1 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to The Royal Bank of Scotland Group plc (NYSE:RBS). We will take a look at AFLAC Incorporated (NYSE:AFL), Orange S.A. (NYSE:ORAN), Valero Energy Corporation (NYSE:VLO), and Canadian Natural Resources Limited (NYSE:CNQ). This group of stocks' market caps are closest to RBS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AFL,32,511962,1 ORAN,2,606,-2 VLO,46,636299,9 CNQ,29,530611,-5 Average,27.25,419870,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $420 million. That figure was $37 million in RBS's case. Valero Energy Corporation (NYSE:VLO) is the most popular stock in this table. On the other hand Orange S.A. (NYSE:ORAN) is the least popular one with only 2 bullish hedge fund positions. The Royal Bank of Scotland Group plc (NYSE:RBS) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately RBS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RBS investors were disappointed as the stock returned -44.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
Related Content
