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Hedge Funds Have Never Been More Bullish On Royal Bank of Canada (RY)

Nina Todic

We at Insider Monkey have gone over 738 13F filings that hedge funds and famous value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article we look at what those investors think of Royal Bank of Canada (NYSE:RY).

Royal Bank of Canada (NYSE:RY) investors should pay attention to an increase in hedge fund sentiment of late. RY was in 17 hedge funds' portfolios at the end of March. There were 14 hedge funds in our database with RY positions at the end of the previous quarter. Our calculations also showed that ry isn't among the 30 most popular stocks among hedge funds.

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.


Let's analyze the recent hedge fund action encompassing Royal Bank of Canada (NYSE:RY).

What have hedge funds been doing with Royal Bank of Canada (NYSE:RY)?

Heading into the second quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the fourth quarter of 2018. On the other hand, there were a total of 12 hedge funds with a bullish position in RY a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with RY Positions

More specifically, Renaissance Technologies was the largest shareholder of Royal Bank of Canada (NYSE:RY), with a stake worth $224.5 million reported as of the end of March. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $87.3 million. AQR Capital Management, D E Shaw, and Bridgewater Associates were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, some big names have been driving this bullishness. Laurion Capital Management, managed by Benjamin A. Smith, created the largest position in Royal Bank of Canada (NYSE:RY). Laurion Capital Management had $1.7 million invested in the company at the end of the quarter. Michael Platt and William Reeves's BlueCrest Capital Mgmt. also initiated a $1.5 million position during the quarter. The other funds with brand new RY positions are Alec Litowitz and Ross Laser's Magnetar Capital, Dmitry Balyasny's Balyasny Asset Management, and Roy Vermus and Shlomi Bracha's Noked Capital.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Royal Bank of Canada (NYSE:RY) but similarly valued. We will take a look at Altria Group Inc (NYSE:MO), Costco Wholesale Corporation (NASDAQ:COST), HDFC Bank Limited (NYSE:HDB), and Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR). All of these stocks' market caps match RY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MO,36,823787,-5 COST,44,3323751,-4 HDB,24,961489,-4 PBR,30,2312742,-2 Average,33.5,1855442,-3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1855 million. That figure was $552 million in RY's case. Costco Wholesale Corporation (NASDAQ:COST) is the most popular stock in this table. On the other hand HDFC Bank Limited (NYSE:HDB) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Royal Bank of Canada (NYSE:RY) is even less popular than HDB. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on RY, though not to the same extent, as the stock returned 6.1% during the same time frame and outperformed the market as well.

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

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