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. Keeping this in mind, let's take a look at whether Rayonier Inc. (NYSE:RYN) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Rayonier Inc. (NYSE:RYN) going to take off soon? Investors who are in the know are turning less bullish. The number of bullish hedge fund positions fell by 1 recently. Our calculations also showed that RYN 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).
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 more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_758450" align="aligncenter" width="400"] Martin Whitman of Third Avenue Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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. With all of this in mind we're going to analyze the latest hedge fund action encompassing Rayonier Inc. (NYSE:RYN).
Hedge fund activity in Rayonier Inc. (NYSE:RYN)
Heading into the first quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the third quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in RYN a year ago. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Rayonier Inc. (NYSE:RYN) was held by Impax Asset Management, which reported holding $143.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $136 million position. Other investors bullish on the company included Third Avenue Management, Millennium Management, and Driehaus Capital. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to Rayonier Inc. (NYSE:RYN), around 4.16% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, setting aside 1.6 percent of its 13F equity portfolio to RYN.
Due to the fact that Rayonier Inc. (NYSE:RYN) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few funds that elected to cut their full holdings last quarter. At the top of the heap, Greg Poole's Echo Street Capital Management sold off the largest position of all the hedgies monitored by Insider Monkey, worth an estimated $10.7 million in stock. D. E. Shaw's fund, D E Shaw, also cut its stock, about $1.3 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Rayonier Inc. (NYSE:RYN). These stocks are Tripadvisor Inc (NASDAQ:TRIP), Brighthouse Financial, Inc. (NASDAQ:BHF), Echostar Corporation (NASDAQ:SATS), and CoreSite Realty Corp (NYSE:COR). This group of stocks' market valuations are closest to RYN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRIP,39,794196,7 BHF,43,610609,14 SATS,26,641376,-6 COR,21,254981,4 Average,32.25,575291,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $575 million. That figure was $360 million in RYN's case. Brighthouse Financial, Inc. (NASDAQ:BHF) is the most popular stock in this table. On the other hand CoreSite Realty Corp (NYSE:COR) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Rayonier Inc. (NYSE:RYN) is even less popular than COR. Hedge funds dodged a bullet by taking a bearish stance towards RYN. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately RYN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RYN investors were disappointed as the stock returned -32.2% during the same time period 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 most of these stocks already outperformed the market so far in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.