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Were Hedge Funds Right About ResMed Inc. (RMD)?

Abigail Fisher

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article, we look at what those funds think of ResMed Inc. (NYSE:RMD) based on that data.

Is ResMed Inc. (NYSE:RMD) a superb investment today? Hedge funds are getting less optimistic. The number of bullish hedge fund positions went down by 2 lately. Our calculations also showed that RMD isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

[caption id="attachment_189632" align="aligncenter" width="399"] David Harding of Winton Capital Management[/caption]

David Harding

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader's corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's go over the latest hedge fund action regarding ResMed Inc. (NYSE:RMD).

How are hedge funds trading ResMed Inc. (NYSE:RMD)?

At Q4's end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the third quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in RMD a year ago. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of ResMed Inc. (NYSE:RMD), with a stake worth $44.6 million reported as of the end of September. Trailing AQR Capital Management was Adage Capital Management, which amassed a stake valued at $26 million. Motley Fool Asset Management, Renaissance Technologies, and Winton Capital 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 Motley Fool Asset Management allocated the biggest weight to ResMed Inc. (NYSE:RMD), around 2.53% of its 13F portfolio. Aubrey Capital Management is also relatively very bullish on the stock, earmarking 2.11 percent of its 13F equity portfolio to RMD.

Due to the fact that ResMed Inc. (NYSE:RMD) has witnessed a decline in interest from the smart money, it's safe to say that there lies a certain "tier" of money managers that elected to cut their entire stakes heading into Q4. Intriguingly, Lee Ainslie's Maverick Capital dropped the biggest investment of the 750 funds followed by Insider Monkey, valued at an estimated $7.7 million in stock. Israel Englander's fund, Millennium Management, also dumped its stock, about $2.1 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as ResMed Inc. (NYSE:RMD) but similarly valued. We will take a look at Dollar Tree, Inc. (NASDAQ:DLTR), American Water Works Company, Inc. (NYSE:AWK), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), and Corteva, Inc. (NYSE:CTVA). This group of stocks' market valuations resemble RMD's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DLTR,51,1620166,-1 AWK,29,625913,-11 FMS,11,13249,6 CTVA,27,676056,-10 Average,29.5,733846,-4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $734 million. That figure was $172 million in RMD's case. Dollar Tree, Inc. (NASDAQ:DLTR) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 11 bullish hedge fund positions. ResMed Inc. (NYSE:RMD) is not the least popular stock in this group but hedge fund interest is still below average. 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on RMD as the stock returned 2.9% during the same time period and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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