Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Rayonier Inc. (NYSE:RYN)? The smart money sentiment can provide an answer to this question.
Is RYN a good stock to buy now? Hedge fund interest in Rayonier Inc. (NYSE:RYN) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that RYN 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 RYN to other stocks including Eagle Materials, Inc. (NYSE:EXP), Grocery Outlet Holding Corp. (NASDAQ:GO), and Halozyme Therapeutics, Inc. (NASDAQ:HALO) to get a better sense of its popularity. 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.
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. Now let's take a glance at the fresh hedge fund action surrounding Rayonier Inc. (NYSE:RYN).
Do Hedge Funds Think RYN Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in RYN over the last 21 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, Impax Asset Management held the most valuable stake in Rayonier Inc. (NYSE:RYN), which was worth $177.7 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $73.7 million worth of shares. Third Avenue Management, Millennium Management, and Arrowstreet Capital 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 Third Avenue Management allocated the biggest weight to Rayonier Inc. (NYSE:RYN), around 3.93% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, dishing out 1.55 percent of its 13F equity portfolio to RYN.
Judging by the fact that Rayonier Inc. (NYSE:RYN) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds who sold off their entire stakes last quarter. Intriguingly, Dmitry Balyasny's Balyasny Asset Management dropped the biggest investment of the "upper crust" of funds followed by Insider Monkey, valued at an estimated $5.6 million in stock. Paul Marshall and Ian Wace's fund, Marshall Wace LLP, also dumped its stock, about $1 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Rayonier Inc. (NYSE:RYN). These stocks are Eagle Materials, Inc. (NYSE:EXP), Grocery Outlet Holding Corp. (NASDAQ:GO), Halozyme Therapeutics, Inc. (NASDAQ:HALO), Rexnord Corp (NYSE:RXN), SailPoint Technologies Holdings, Inc. (NYSE:SAIL), 1Life Healthcare, Inc. (NASDAQ:ONEM), and JBG SMITH Properties (NYSE:JBGS). This group of stocks' market caps resemble RYN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EXP,31,472642,-10 GO,18,119079,-1 HALO,26,206784,0 RXN,24,319104,-3 SAIL,29,765976,8 ONEM,22,378001,2 JBGS,17,268888,-8 Average,23.9,361496,-1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.9 hedge funds with bullish positions and the average amount invested in these stocks was $361 million. That figure was $304 million in RYN's case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand JBG SMITH Properties (NYSE:JBGS) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Rayonier Inc. (NYSE:RYN) is even less popular than JBGS. Our overall hedge fund sentiment score for RYN is 30.5. 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. Hedge funds clearly dropped the ball on RYN as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on RYN as the stock returned 15.3% since Q3 (through December 14th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.