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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Royal Gold, Inc (NASDAQ:RGLD).
Is RGLD a good stock to buy? Royal Gold, Inc (NASDAQ:RGLD) was in 30 hedge funds' portfolios at the end of September. The all time high for this statistic is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. RGLD investors should pay attention to an increase in hedge fund sentiment lately. There were 27 hedge funds in our database with RGLD positions at the end of the second quarter. Our calculations also showed that RGLD isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
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 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Eric Sprott of Sprott Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Keeping this in mind let's analyze the latest hedge fund action surrounding Royal Gold, Inc (NASDAQ:RGLD).
Do Hedge Funds Think RGLD Is A Good Stock To Buy Now?
At Q3's end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in RGLD 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.
More specifically, Renaissance Technologies was the largest shareholder of Royal Gold, Inc (NASDAQ:RGLD), with a stake worth $103.4 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $50.8 million. D E Shaw, Sprott Asset Management, and Millennium 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 Sprott Asset Management allocated the biggest weight to Royal Gold, Inc (NASDAQ:RGLD), around 1.34% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, dishing out 0.88 percent of its 13F equity portfolio to RGLD.
As one would reasonably expect, key money managers have jumped into Royal Gold, Inc (NASDAQ:RGLD) headfirst. Holocene Advisors, managed by Brandon Haley, assembled the most valuable position in Royal Gold, Inc (NASDAQ:RGLD). Holocene Advisors had $1.9 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $1.9 million position during the quarter. The following funds were also among the new RGLD investors: Michael Gelband's ExodusPoint Capital, Anand Parekh's Alyeska Investment Group, and Qing Li's Sciencast Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Royal Gold, Inc (NASDAQ:RGLD) but similarly valued. We will take a look at OneConnect Financial Technology Co., Ltd. (NYSE:OCFT), Bentley Systems, Incorporated (NASDAQ:BSY), Nikola Corporation (NASDAQ:NKLA), Floor & Decor Holdings, Inc. (NYSE:FND), Repligen Corporation (NASDAQ:RGEN), Wynn Resorts, Limited (NASDAQ:WYNN), and Mobile TeleSystems PJSC (NYSE:MBT). All of these stocks' market caps are similar to RGLD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OCFT,11,47483,6 BSY,19,60746,19 NKLA,17,199530,-12 FND,42,942350,-2 RGEN,35,982491,1 WYNN,43,510257,-2 MBT,10,311140,-1 Average,25.3,436285,1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $436 million. That figure was $352 million in RGLD's case. Wynn Resorts, Limited (NASDAQ:WYNN) is the most popular stock in this table. On the other hand Mobile TeleSystems PJSC (NYSE:MBT) is the least popular one with only 10 bullish hedge fund positions. Royal Gold, Inc (NASDAQ:RGLD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RGLD is 68.3. 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. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately RGLD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RGLD were disappointed as the stock returned -6.7% since the end of September (through 12/18) 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.