Hedge Funds Are Souring On Rio Tinto Group
In this article we will take a look at whether hedge funds
think Rio Tinto Group (NYSE:RIO) is a good investment right now. We check hedge
fund and billionaire investor sentiment before delving into hours of research.
Hedge funds spend millions of dollars on Ivy League graduates, unconventional
data sources, expert networks, and get tips from investment bankers and
industry insiders. Sure they sometimes fail miserably, but their consensus
stock picks historically outperformed the market after adjusting for known risk
factors.
Rio Tinto Group (NYSE:RIO) investors should be aware of a
decrease in enthusiasm from smart money of late. Rio Tinto Group (NYSE:RIO) was
in 21 hedge funds' portfolios at the end of the second quarter of 2021. The all
time high for this statistic is 26. There were 25 hedge funds in our database
with RIO positions at the end of the first quarter. Our calculations also
showed that RIO isn't among the 30 most popular stocks among hedge funds (click
for Q2 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 79 percentage points since March 2017 (see the details
here). That's why we believe hedge fund sentiment is an extremely useful
indicator that investors should pay attention to.
At Insider Monkey, we scour multiple sources to uncover the
next great investment idea. For example, lithium mining is one of the fastest
growing industries right now, so we are checking out stock pitches like this
emerging lithium stock. We go through lists like the 10 best EV stocks to pick
the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to take a look
at the latest hedge fund action regarding Rio Tinto Group (NYSE:RIO).
At the end of June, a total of 21 of the hedge funds tracked
by Insider Monkey held long positions in this stock, a change of -16% from one
quarter earlier. On the other hand, there were a total of 20 hedge funds with a
bullish position in RIO a year ago. With hedgies' sentiment swirling, there
exists a few noteworthy hedge fund managers who were adding to their stakes
considerably (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most
valuable stake in Rio Tinto Group (NYSE:RIO), which was worth $1084.4 million
at the end of the second quarter. On the second spot was Arrowstreet Capital
which amassed $156.8 million worth of shares. Masters Capital Management,
Impala Asset Management, and Citadel Investment Group 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 Impala Asset Management
allocated the biggest weight to Rio Tinto Group (NYSE:RIO), around 5.06% of its
13F portfolio. Impala Asset Management is also relatively very bullish on the
stock, dishing out 3.24 percent of its 13F equity portfolio to RIO.
Judging by the fact that Rio Tinto Group (NYSE:RIO) has
experienced falling interest from hedge fund managers, it's safe to say that
there is a sect of money managers that slashed their positions entirely in the
second quarter. At the top of the heap, Ken Heebner's Capital Growth Management
dumped the biggest investment of all the hedgies monitored by Insider Monkey,
valued at close to $23.3 million in stock, and Benjamin A. Smith's Laurion
Capital Management was right behind this move, as the fund said goodbye to
about $23.3 million worth. These transactions are important to note, as total
hedge fund interest fell by 4 funds in the second quarter.
Let's now review hedge fund activity in other stocks similar
to Rio Tinto Group (NYSE:RIO). We will take a look at HDFC Bank Limited
(NYSE:HDB), Intuit Inc. (NASDAQ:INTU), BlackRock, Inc. (NYSE:BLK), American
Express Company (NYSE:AXP), Starbucks Corporation (NASDAQ:SBUX), Sanofi
(NYSE:SNY), and International Business Machines Corp. (NYSE:IBM). This group of
stocks' market caps are similar to RIO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF
Positions (x1000), Change in HF Position HDB,39,1731917,12 INTU,66,5382791,-2
BLK,47,1282801,5 AXP,52,28660485,-1 SBUX,63,4757968,2 SNY,16,1261299,1
IBM,41,1373521,0 Average,46.3,6350112,2.4 [/table]
As you can see these stocks had an average of 46.3 hedge
funds with bullish positions and the average amount invested in these stocks
was $6350 million. That figure was $1420 million in RIO's case. Intuit Inc.
(NASDAQ:INTU) is the most popular stock in this table. On the other hand Sanofi
(NYSE:SNY) is the least popular one with only 16 bullish hedge fund positions.
Rio Tinto Group (NYSE:RIO) is not the least popular stock in this group but
hedge fund interest is still below average. Our overall hedge fund sentiment
score for RIO is 30.2. 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 negative signal and we'd rather
spend our time researching stocks that hedge funds are piling on. Our
calculations showed that top 5 most popular stocks among hedge funds returned
95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40
percentage points.
These stocks gained 24% in 2021 through October 22nd and
surpassed the market again by 1.6 percentage points. Unfortunately RIO wasn't
nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish);
RIO investors were disappointed as the stock returned -19.7% since the end of
June (through 10/22) and underperformed the market. If you are interested in
investing in large cap stocks with huge upside potential, you should check out
the top 5 most popular stocks among hedge funds as most of these stocks already
outperformed the market in 2021.
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