Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before 2018's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Range Resources Corp. (NYSE:RRC) changed recently.
Range Resources Corp. (NYSE:RRC) was in 26 hedge funds' portfolios at the end of the third quarter of 2019. RRC investors should pay attention to a decrease in hedge fund sentiment of late. There were 31 hedge funds in our database with RRC holdings at the end of the previous quarter. Our calculations also showed that RRC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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_26335" align="alignnone" width="600"] Ken Fisher of Fisher Asset Management[/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. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let's analyze the new hedge fund action regarding Range Resources Corp. (NYSE:RRC).
How have hedgies been trading Range Resources Corp. (NYSE:RRC)?
At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in RRC a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, SailingStone Capital Partners was the largest shareholder of Range Resources Corp. (NYSE:RRC), with a stake worth $115.4 million reported as of the end of September. Trailing SailingStone Capital Partners was Kopernik Global Investors, which amassed a stake valued at $45.5 million. Adage Capital Management, Fisher Asset Management, and AQR Capital 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 29.33% of its 13F portfolio. Kopernik Global Investors is also relatively very bullish on the stock, earmarking 8.65 percent of its 13F equity portfolio to RRC.
Due to the fact that Range Resources Corp. (NYSE:RRC) has faced a decline in interest from hedge fund managers, logic holds that there is a sect of fund managers that elected to cut their positions entirely in the third quarter. At the top of the heap, Ross Margolies's Stelliam Investment Management cut the biggest position of all the hedgies tracked by Insider Monkey, totaling close to $20.6 million in stock. Robert Pitts's fund, Steadfast Capital Management, also said goodbye to its stock, about $15.8 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 5 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Range Resources Corp. (NYSE:RRC) but similarly valued. We will take a look at Noble Midstream Partners LP (NYSE:NBLX), Office Depot Inc (NYSE:ODP), TiVo Corporation (NASDAQ:TIVO), and CareDx, Inc. (NASDAQ:CDNA). This group of stocks' market values match RRC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NBLX,4,2598,0 ODP,16,61845,-4 TIVO,21,95965,2 CDNA,22,104501,-2 Average,15.75,66227,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $263 million in RRC's case. CareDx, Inc. (NASDAQ:CDNA) is the most popular stock in this table. On the other hand Noble Midstream Partners LP (NYSE:NBLX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Range Resources Corp. (NYSE:RRC) is more popular among hedge funds. 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. Unfortunately RRC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RRC were disappointed as the stock returned -48.6% in 2019 and trailed 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 65 percent of these stocks outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.