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In this article we are going to use hedge fund sentiment as a tool and determine whether Rayonier Advanced Materials Inc (NYSE:RYAM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is RYAM a good stock to buy now? Hedge fund interest in Rayonier Advanced Materials Inc (NYSE:RYAM) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that RYAM 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). At the end of this article we will also compare RYAM to other stocks including Park-Ohio Holdings Corp. (NASDAQ:PKOH), Solar Senior Capital Ltd (NASDAQ:SUNS), and DASAN Zhone Solutions, Inc. (NASDAQ:DZSI) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 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 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 stocks that are in our short portfolio.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let's take a peek at the key hedge fund action regarding Rayonier Advanced Materials Inc (NYSE:RYAM).
Do Hedge Funds Think RYAM Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards RYAM over the last 21 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Rayonier Advanced Materials Inc (NYSE:RYAM) was held by Renaissance Technologies, which reported holding $13.9 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $1.7 million position. Other investors bullish on the company included Two Sigma Advisors, D E Shaw, and Millennium Management. In terms of the portfolio weights assigned to each position Horizon Asset Management allocated the biggest weight to Rayonier Advanced Materials Inc (NYSE:RYAM), around 0.02% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to RYAM.
Judging by the fact that Rayonier Advanced Materials Inc (NYSE:RYAM) has witnessed declining sentiment from hedge fund managers, logic holds that there lies a certain "tier" of hedgies that decided to sell off their entire stakes in the third quarter. It's worth mentioning that Donald Sussman's Paloma Partners said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, totaling close to $0.1 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund cut about $0.1 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Rayonier Advanced Materials Inc (NYSE:RYAM) but similarly valued. These stocks are Park-Ohio Holdings Corp. (NASDAQ:PKOH), Solar Senior Capital Ltd (NASDAQ:SUNS), DASAN Zhone Solutions, Inc. (NASDAQ:DZSI), Ceragon Networks Ltd. (NASDAQ:CRNT), iCAD Inc (NASDAQ:ICAD), T2 Biosystems Inc (NASDAQ:TTOO), and Veritiv Corp (NYSE:VRTV). This group of stocks' market values are similar to RYAM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PKOH,6,16550,-2 SUNS,2,1073,0 DZSI,4,10546,-2 CRNT,7,11308,0 ICAD,14,31633,2 TTOO,4,562,0 VRTV,11,52963,1 Average,6.9,17805,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.9 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $19 million in RYAM's case. iCAD Inc (NASDAQ:ICAD) is the most popular stock in this table. On the other hand Solar Senior Capital Ltd (NASDAQ:SUNS) is the least popular one with only 2 bullish hedge fund positions. Rayonier Advanced Materials Inc (NYSE:RYAM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RYAM is 49.4. 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. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on RYAM as the stock returned 154.7% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.