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Were Hedge Funds Right About Souring On Range Resources Corp. (RRC)?

Reymerlyn Martin

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Range Resources Corp. (NYSE:RRC) has seen a decrease in enthusiasm from smart money in recent months. Our calculations also showed that RRC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

If you'd ask most investors, hedge funds are perceived as underperforming, outdated financial vehicles of the past. While there are greater than 8000 funds trading at present, Our researchers hone in on the crème de la crème of this club, approximately 750 funds. These hedge fund managers orchestrate the lion's share of the hedge fund industry's total asset base, and by monitoring their first-class picks, Insider Monkey has deciphered many investment strategies that have historically exceeded the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_340081" align="aligncenter" width="600"] Phill Gross of Adage Capital Management[/caption]

Phill Gross of Adage Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's review the fresh hedge fund action regarding Range Resources Corp. (NYSE:RRC).

What does smart money think about Range Resources Corp. (NYSE:RRC)?

Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the second quarter of 2019. By comparison, 29 hedge funds held shares or bullish call options in RRC 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.

RRC_dec2019

Among these funds, SailingStone Capital Partners held the most valuable stake in Range Resources Corp. (NYSE:RRC), which was worth $115.4 million at the end of the third quarter. On the second spot was Kopernik Global Investors which amassed $45.5 million worth of shares. Adage Capital Management, Fisher Asset Management, and AQR 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 SailingStone Capital Partners allocated the biggest weight to Range Resources Corp. (NYSE:RRC), around 29.33% of its portfolio. Kopernik Global Investors is also relatively very bullish on the stock, earmarking 8.65 percent of its 13F equity portfolio to RRC.

Seeing as Range Resources Corp. (NYSE:RRC) has witnessed declining sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of fund managers who sold off their entire stakes in the third quarter. Intriguingly, Ross Margolies's Stelliam Investment Management cut the biggest position of all the hedgies watched by Insider Monkey, worth close to $20.6 million in stock. Robert Pitts's fund, Steadfast Capital Management, also dumped its stock, about $15.8 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 5 funds in the third quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Range Resources Corp. (NYSE:RRC) but similarly valued. We will take a look at Noble Midstream Partners LP (NYSE:NBLX), Office Depot Inc (NASDAQ:ODP), TiVo Corporation (NASDAQ:TIVO), and CareDx, Inc. (NASDAQ:CDNA). All of these stocks' market caps resemble RRC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NBLX,4,2598,0 ODP,16,61845,-4 TIVO,21,95965,2 CDNA,22,104501,-2 Average,15.75,66227,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $263 million in RRC's case. CareDx, Inc. (NASDAQ:CDNA) is the most popular stock in this table. On the other hand Noble Midstream Partners LP (NYSE:NBLX) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Range Resources Corp. (NYSE:RRC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately RRC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RRC were disappointed as the stock returned -8.6% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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