Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Rayonier Inc. (NYSE:RYN) a healthy stock for your portfolio? Money managers are becoming less hopeful. The number of long hedge fund positions decreased by 5 lately. Our calculations also showed that RYN 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.
We're going to analyze the fresh hedge fund action regarding Rayonier Inc. (NYSE:RYN).
What have hedge funds been doing with Rayonier Inc. (NYSE:RYN)?
Heading into the second quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the fourth quarter of 2018. By comparison, 14 hedge funds held shares or bullish call options in RYN a year ago. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Rayonier Inc. (NYSE:RYN), which was worth $126.5 million at the end of the first quarter. On the second spot was Impax Asset Management which amassed $83.8 million worth of shares. Moreover, Third Avenue Management, Millennium Management, and Two Sigma Advisors were also bullish on Rayonier Inc. (NYSE:RYN), allocating a large percentage of their portfolios to this stock.
Due to the fact that Rayonier Inc. (NYSE:RYN) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds who were dropping their entire stakes heading into Q3. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace LLP dumped the largest stake of all the hedgies tracked by Insider Monkey, comprising close to $6.7 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also cut its stock, about $2.8 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 5 funds heading into Q3.
Let's go over hedge fund activity in other stocks similar to Rayonier Inc. (NYSE:RYN). These stocks are Eastgroup Properties Inc (NYSE:EGP), Tribune Media Company (NYSE:TRCO), LogMeIn Inc (NASDAQ:LOGM), and Cousins Properties Incorporated (NYSE:CUZ). This group of stocks' market caps match RYN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EGP,7,31107,0 TRCO,28,1320785,-12 LOGM,27,483334,-1 CUZ,22,137516,5 Average,21,493186,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $493 million. That figure was $318 million in RYN's case. Tribune Media Company (NYSE:TRCO) is the most popular stock in this table. On the other hand Eastgroup Properties Inc (NYSE:EGP) is the least popular one with only 7 bullish hedge fund positions. Rayonier Inc. (NYSE:RYN) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately RYN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RYN investors were disappointed as the stock returned -1.8% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.