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The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let's look at how this market volatility affected the sentiment of hedge funds towards Royal Bank of Canada (NYSE:RY), and what that likely means for the prospects of the company and its stock.

Is Royal Bank of Canada (NYSE:RY) ready to rally soon? Investors who are in the know are becoming more confident. The number of bullish hedge fund positions increased by 4 lately. Our calculations also showed that ry isn't among the 30 most popular stocks among hedge funds. RY was in 17 hedge funds' portfolios at the end of September. There were 13 hedge funds in our database with RY holdings at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Let's take a gander at the fresh hedge fund action encompassing Royal Bank of Canada (NYSE:RY).

How have hedgies been trading Royal Bank of Canada (NYSE:RY)?

Heading into the fourth quarter of 2018, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 31% from the second quarter of 2018. By comparison, 15 hedge funds held shares or bullish call options in RY heading into this year. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.