The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Royal Gold, Inc (NASDAQ:RGLD) and determine whether the smart money was really smart about this stock.
Is Royal Gold, Inc (NASDAQ:RGLD) a buy right now? The smart money was reducing their bets on the stock. The number of bullish hedge fund positions retreated by 1 recently. Royal Gold, Inc (NASDAQ:RGLD) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistics is 30. Our calculations also showed that RGLD 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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Eric Sprott Sprott Asset Management
Eric Sprott of Sprott Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. Keeping this in mind let's analyze the key hedge fund action surrounding Royal Gold, Inc (NASDAQ:RGLD).
How have hedgies been trading Royal Gold, Inc (NASDAQ:RGLD)?
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RGLD over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Renaissance Technologies has the number one position in Royal Gold, Inc (NASDAQ:RGLD), worth close to $118.2 million, corresponding to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is D E Shaw, managed by D. E. Shaw, which holds a $45.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism include John Overdeck and David Siegel's Two Sigma Advisors, Eric Sprott's Sprott Asset Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Sprott Asset Management allocated the biggest weight to Royal Gold, Inc (NASDAQ:RGLD), around 2.45% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, earmarking 0.85 percent of its 13F equity portfolio to RGLD.
Due to the fact that Royal Gold, Inc (NASDAQ:RGLD) has witnessed declining sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of money managers who sold off their full holdings heading into Q3. At the top of the heap, Louis Bacon's Moore Global Investments said goodbye to the largest position of the "upper crust" of funds followed by Insider Monkey, valued at an estimated $3.1 million in stock. Steve Cohen's fund, Point72 Asset Management, also cut its stock, about $3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q3.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Royal Gold, Inc (NASDAQ:RGLD) but similarly valued. We will take a look at Mobile TeleSystems Public Joint Stock Company (NYSE:MBT), SEI Investments Company (NASDAQ:SEIC), Amdocs Limited (NASDAQ:DOX), ON Semiconductor Corporation (NASDAQ:ON), InterContinental Hotels Group PLC (NYSE:IHG), Pegasystems Inc. (NASDAQ:PEGA), and American Homes 4 Rent (NYSE:AMH). This group of stocks' market valuations match RGLD's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MBT,11,344072,2 SEIC,37,233631,4 DOX,27,406760,4 ON,32,504577,3 IHG,5,5206,1 PEGA,28,1451413,-5 AMH,23,232272,2 Average,23.3,453990,1.6 [/table]
As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $454 million. That figure was $425 million in RGLD's case. SEI Investments Company (NASDAQ:SEIC) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 5 bullish hedge fund positions. Royal Gold, Inc (NASDAQ:RGLD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RGLD is 65.4. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately RGLD wasn't nearly as popular as these 10 stocks and hedge funds that were betting on RGLD were disappointed as the stock returned -4.8% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
