At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Range Resources Corp. (NYSE:RRC) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Range Resources Corp. (NYSE:RRC) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 23 hedge funds' portfolios at the end of the second quarter of 2020. Our calculations also showed that RRC 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). At the end of this article we will also compare RRC to other stocks including The Geo Group, Inc. (NYSE:GEO), Meritor Inc (NYSE:MTOR), and Enviva Partners, LP (NYSE:EVA) to get a better sense of its popularity. 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.
Steven Cohen of Point72 Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. Keeping this in mind let's go over the latest hedge fund action regarding Range Resources Corp. (NYSE:RRC).
What does smart money think about Range Resources Corp. (NYSE:RRC)?
Heading into the third quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards RRC over the last 20 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, SailingStone Capital Partners was the largest shareholder of Range Resources Corp. (NYSE:RRC), with a stake worth $109.5 million reported as of the end of September. Trailing SailingStone Capital Partners was Kopernik Global Investors, which amassed a stake valued at $55.2 million. D E Shaw, Arrowstreet Capital, and Fisher 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 SailingStone Capital Partners allocated the biggest weight to Range Resources Corp. (NYSE:RRC), around 40.67% of its 13F portfolio. Kopernik Global Investors is also relatively very bullish on the stock, dishing out 9.92 percent of its 13F equity portfolio to RRC.
Judging by the fact that Range Resources Corp. (NYSE:RRC) has faced declining sentiment from the smart money, logic holds that there was a specific group of hedge funds who were dropping their positions entirely by the end of the second quarter. Intriguingly, Phill Gross and Robert Atchinson's Adage Capital Management dumped the biggest investment of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $11.6 million in stock. Himanshu H. Shah's fund, Shah Capital Management, also cut its stock, about $5.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Range Resources Corp. (NYSE:RRC) but similarly valued. These stocks are The Geo Group, Inc. (NYSE:GEO), Meritor Inc (NYSE:MTOR), Enviva Partners, LP (NYSE:EVA), Sunnova Energy International Inc. (NYSE:NOVA), Amneal Pharmaceuticals, Inc. (NYSE:AMRX), Monmouth Real Estate Investment Corp. (NYSE:MNR), and Esperion Therapeutics, Inc. (NASDAQ:ESPR). This group of stocks' market valuations are closest to RRC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GEO,20,63089,6 MTOR,18,206794,1 EVA,8,217021,3 NOVA,10,92088,1 AMRX,11,20063,4 MNR,10,60863,-2 ESPR,19,324252,1 Average,13.7,140596,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.7 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $301 million in RRC's case. The Geo Group, Inc. (NYSE:GEO) is the most popular stock in this table. On the other hand Enviva Partners, LP (NYSE:EVA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Range Resources Corp. (NYSE:RRC) is more popular among hedge funds. Our overall hedge fund sentiment score for RRC is 70. 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. 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 returned 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on RRC as the stock returned 17.6% since the end of June 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.
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Disclosure: None. This article was originally published at Insider Monkey.