It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 6 percentage points during the first 5 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Raytheon Company (NYSE:RTN).
Is Raytheon Company (NYSE:RTN) an exceptional investment today? The smart money is in a bullish mood. The number of bullish hedge fund bets increased by 2 in recent months. Our calculations also showed that RTN 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 take a gander at the recent hedge fund action surrounding Raytheon Company (NYSE:RTN).
How have hedgies been trading Raytheon Company (NYSE:RTN)?
At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RTN over the last 15 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Raytheon Company (NYSE:RTN) was held by AQR Capital Management, which reported holding $540.1 million worth of stock at the end of March. It was followed by D E Shaw with a $147.9 million position. Other investors bullish on the company included Two Sigma Advisors, Millennium Management, and Citadel Investment Group.
Consequently, specific money managers were breaking ground themselves. Carlson Capital, managed by Clint Carlson, established the most outsized position in Raytheon Company (NYSE:RTN). Carlson Capital had $20.9 million invested in the company at the end of the quarter. David Costen Haley's HBK Investments also initiated a $18.1 million position during the quarter. The following funds were also among the new RTN investors: Michael Kharitonov and Jon David McAuliffe's Voleon Capital, Alexander Mitchell's Scopus Asset Management, and D. E. Shaw's D E Shaw.
Let's now review hedge fund activity in other stocks similar to Raytheon Company (NYSE:RTN). We will take a look at Suncor Energy Inc. (NYSE:SU), Ecolab Inc. (NYSE:ECL), Deere & Company (NYSE:DE), and Vodafone Group Plc (NASDAQ:VOD). This group of stocks' market valuations are similar to RTN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SU,33,1012222,3 ECL,27,1965653,0 DE,31,1412560,-16 VOD,18,438299,0 Average,27.25,1207184,-3.25 [/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 $1207 million. That figure was $1201 million in RTN's case. Suncor Energy Inc. (NYSE:SU) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Raytheon Company (NYSE:RTN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately RTN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RTN were disappointed as the stock returned -2.6% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.