At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Ryanair Holdings plc (NASDAQ:RYAAY) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Ryanair Holdings plc (NASDAQ:RYAAY) the right pick for your portfolio? Investors who are in the know were reducing their bets on the stock. The number of bullish hedge fund positions were trimmed by 1 recently. Ryanair Holdings plc (NASDAQ:RYAAY) was in 21 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 25. Our calculations also showed that RYAAY isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Glenn Greenberg of Brave Warrior 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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let's check out the new hedge fund action encompassing Ryanair Holdings plc (NASDAQ:RYAAY).
What have hedge funds been doing with Ryanair Holdings plc (NASDAQ:RYAAY)?
At second quarter's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in RYAAY 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.
The largest stake in Ryanair Holdings plc (NASDAQ:RYAAY) was held by Renaissance Technologies, which reported holding $214.2 million worth of stock at the end of September. It was followed by Immersion Capital with a $144.8 million position. Other investors bullish on the company included Polaris Capital Management, Lansdowne Partners, and Elliott Investment Management. In terms of the portfolio weights assigned to each position Immersion Capital allocated the biggest weight to Ryanair Holdings plc (NASDAQ:RYAAY), around 14.95% of its 13F portfolio. Teewinot Capital Advisers is also relatively very bullish on the stock, setting aside 13.34 percent of its 13F equity portfolio to RYAAY.
Since Ryanair Holdings plc (NASDAQ:RYAAY) has witnessed declining sentiment from the aggregate hedge fund industry, it's safe to say that there were a few money managers that slashed their positions entirely in the second quarter. It's worth mentioning that James Chen's Ovata Capital Management said goodbye to the biggest stake of the 750 funds followed by Insider Monkey, totaling an estimated $2.4 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund sold off about $1.5 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds in the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Ryanair Holdings plc (NASDAQ:RYAAY) but similarly valued. We will take a look at Domino's Pizza, Inc. (NYSE:DPZ), ViacomCBS Inc. (NASDAQ:VIAC), GSX Techedu Inc. (NYSE:GSX), Zscaler, Inc. (NASDAQ:ZS), Kansas City Southern (NYSE:KSU), Jack Henry & Associates, Inc. (NASDAQ:JKHY), and Roku, Inc. (NASDAQ:ROKU). This group of stocks' market caps are closest to RYAAY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DPZ,47,1746559,2 VIAC,45,1153093,-9 GSX,13,103316,0 ZS,35,641838,8 KSU,47,502734,2 JKHY,31,276056,4 ROKU,41,450808,6 Average,37,696343,1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $696 million. That figure was $747 million in RYAAY's case. Domino's Pizza, Inc. (NYSE:DPZ) is the most popular stock in this table. On the other hand GSX Techedu Inc. (NYSE:GSX) is the least popular one with only 13 bullish hedge fund positions. Ryanair Holdings plc (NASDAQ:RYAAY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RYAAY is 41. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on RYAAY as the stock returned 23.2% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.