U.S. Markets open in 4 hrs 37 mins

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

Reymerlyn Martin

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.

ResMed Inc. (NYSE:RMD) investors should pay attention to a decrease in hedge fund interest recently. Our calculations also showed that RMD isn't among the 30 most popular stocks among hedge funds.

In the 21st century investor’s toolkit there are plenty of gauges stock traders have at their disposal to size up stocks. Two of the less utilized gauges are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the elite hedge fund managers can trounce their index-focused peers by a significant margin (see the details here).

BRIDGEWATER ASSOCIATES

Let's take a look at the fresh hedge fund action encompassing ResMed Inc. (NYSE:RMD).

What does the smart money think about ResMed Inc. (NYSE:RMD)?

Heading into the first quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in RMD a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

RMD_mar2019

The largest stake in ResMed Inc. (NYSE:RMD) was held by AQR Capital Management, which reported holding $109.7 million worth of stock at the end of September. It was followed by Millennium Management with a $38.8 million position. Other investors bullish on the company included Arrowstreet Capital, Renaissance Technologies, and Citadel Investment Group.

Since ResMed Inc. (NYSE:RMD) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds who were dropping their entire stakes by the end of the third quarter. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace LLP dumped the biggest investment of the "upper crust" of funds tracked by Insider Monkey, totaling an estimated $41.2 million in stock, and Matthew Tewksbury's Stevens Capital Management was right behind this move, as the fund dropped about $8.3 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks similar to ResMed Inc. (NYSE:RMD). We will take a look at Aptiv PLC (NYSE:APTV), Essex Property Trust Inc (NYSE:ESS), Church & Dwight Co., Inc. (NYSE:CHD), and Entergy Corporation (NYSE:ETR). This group of stocks' market values are closest to RMD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APTV,44,715224,1 ESS,19,432405,3 CHD,30,222985,10 ETR,31,1503762,4 Average,31,718594,4.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $719 million. That figure was $394 million in RMD's case. Aptiv PLC (NYSE:APTV) is the most popular stock in this table. On the other hand Essex Property Trust Inc (NYSE:ESS) is the least popular one with only 19 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately RMD wasn't in this group. Hedge funds that bet on RMD were disappointed as the stock lost 11.5% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

Related Content