Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Relx PLC (NYSE:RELX).
Hedge fund interest in Relx PLC (NYSE:RELX) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that RELX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Analog Devices, Inc. (NASDAQ:ADI), Lululemon Athletica inc. (NASDAQ:LULU), and CNOOC Limited (NYSE:CEO) to gather more data points. 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 66 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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind let's review the key hedge fund action surrounding Relx PLC (NYSE:RELX).
How have hedgies been trading Relx PLC (NYSE:RELX)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. By comparison, 6 hedge funds held shares or bullish call options in RELX a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Relx PLC (NYSE:RELX), with a stake worth $72.5 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $22.5 million. Fisher Asset Management, Millennium Management, and Qtron Investments 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 Qtron Investments allocated the biggest weight to Relx PLC (NYSE:RELX), around 0.2% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to RELX.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: ExodusPoint Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let's check out hedge fund activity in other stocks similar to Relx PLC (NYSE:RELX). These stocks are Analog Devices, Inc. (NASDAQ:ADI), Lululemon Athletica inc. (NASDAQ:LULU), CNOOC Limited (NYSE:CEO), Koninklijke Philips NV (NYSE:PHG), Veeva Systems Inc (NYSE:VEEV), General Motors Company (NYSE:GM), and Monster Beverage Corp (NASDAQ:MNST). This group of stocks' market valuations are closest to RELX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADI,52,3649787,3 LULU,50,1273396,11 CEO,14,176612,1 PHG,10,56033,4 VEEV,38,733670,3 GM,60,4789000,-9 MNST,50,2369684,15 Average,39.1,1864026,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.1 hedge funds with bullish positions and the average amount invested in these stocks was $1864 million. That figure was $115 million in RELX's case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Relx PLC (NYSE:RELX) is even less popular than PHG. Our overall hedge fund sentiment score for RELX is 30.7. 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. Hedge funds dodged a bullet by taking a bearish stance towards RELX. 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 percentage points. These stocks gained 30.7% in 2020 through November 27th but managed to beat the market again by 16.1 percentage points. Unfortunately RELX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RELX investors were disappointed as the stock returned 4.5% since the end of the third quarter (through 11/27) 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 2020.
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Disclosure: None. This article was originally published at Insider Monkey.