U.S. Markets closed

Was The Smart Money Right About Royal Dutch Shell plc (RDS)?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·6 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Royal Dutch Shell plc (NYSE:RDS) changed recently.

Royal Dutch Shell plc (NYSE:RDS) shareholders have witnessed an increase in activity from the world's largest hedge funds of late. Royal Dutch Shell plc (NYSE:RDS) was in 34 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 39. Our calculations also showed that RDS 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.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Ken Fisher FISHER ASSET MANAGEMENT
Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 biggest telecom companies to identify fast growing companies in various industries. 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 take a gander at the key hedge fund action surrounding Royal Dutch Shell plc (NYSE:RDS).

How are hedge funds trading Royal Dutch Shell plc (NYSE:RDS)?

At second quarter's end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RDS over the last 20 quarters. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is RDS A Good Stock To Buy?
Is RDS A Good Stock To Buy?

Among these funds, Fisher Asset Management held the most valuable stake in Royal Dutch Shell plc (NYSE:RDS), which was worth $498.6 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $119.9 million worth of shares. Point72 Asset Management, Orbis Investment 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 Covalis Capital allocated the biggest weight to Royal Dutch Shell plc (NYSE:RDS), around 4.53% of its 13F portfolio. Stamos Capital is also relatively very bullish on the stock, earmarking 2.6 percent of its 13F equity portfolio to RDS.

Consequently, some big names have jumped into Royal Dutch Shell plc (NYSE:RDS) headfirst. Point72 Asset Management, managed by Steve Cohen, assembled the most valuable position in Royal Dutch Shell plc (NYSE:RDS). Point72 Asset Management had $102.1 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $47.6 million position during the quarter. The other funds with brand new RDS positions are D. E. Shaw's D E Shaw, Ken Griffin's Citadel Investment Group, and Vince Maddi and Shawn Brennan's SIR Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Royal Dutch Shell plc (NYSE:RDS) but similarly valued. These stocks are NextEra Energy, Inc. (NYSE:NEE), Texas Instruments Incorporated (NASDAQ:TXN), Union Pacific Corporation (NYSE:UNP), American Tower Corporation (NYSE:AMT), Shopify Inc (NYSE:SHOP), Linde plc (NYSE:LIN), and Philip Morris International Inc. (NYSE:PM). This group of stocks' market valuations are closest to RDS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NEE,55,1943660,3 TXN,55,2131731,9 UNP,68,3685933,5 AMT,61,4407292,4 SHOP,57,5916379,14 LIN,52,3643095,-1 PM,53,2574980,5 Average,57.3,3471867,5.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 57.3 hedge funds with bullish positions and the average amount invested in these stocks was $3472 million. That figure was $1165 million in RDS's case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand Linde plc (NYSE:LIN) is the least popular one with only 52 bullish hedge fund positions. Compared to these stocks Royal Dutch Shell plc (NYSE:RDS) is even less popular than LIN. Our overall hedge fund sentiment score for RDS is 36.2. 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 dodged a bullet by taking a bearish stance towards RDS. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th but managed to beat the market again by 20.1 percentage points. Unfortunately RDS wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); RDS investors were disappointed as the stock returned -21.1% since the end of the second quarter (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

Get real-time email alerts: Follow Royal Dutch Shell Plc

Disclosure: None. This article was originally published at Insider Monkey.

Related Content