Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)‘s stock has lost nearly 50% of its value since the beginning of May, with the majority of this drop occurring since the beginning of July, from which the stock has lost nearly 40%. Amidst the steady decline, Morgan Stanley analyst Paretosh Misra stated in a report published earlier today that the frantic sell-off of Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) shares is an over-reaction by investors. He mentioned that there seems to be a near-term catalyst for the stock. Misra pointed out that the concerns with Grasberg Exports in Indonesia and Gresik Smelter is temporary and he expects a rise in Grasberg trades starting in the fourth quarter. Morgan Stanley has upgraded the stock to ‘Overweight’ in April and in the report published earlier today, maintained that ‘Overweight’ rating. Due to the report published by Misra, the stock has gained more than 8% so far today.
Hedge funds on the other hand were bearish on the stock dating back to the first quarter, before its demise. At the end of first quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish in Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), with around $258.1 million invested in it. 49 hedge funds had $615.1 million invested in the stock at the end of 2014. While the stock dropped nearly 19% of its value during the January – March period, there was a 58% drop in the total investment by hedge funds during the same period. This stat shows that the hedge funds tracked by Insider Monkey were extremely bearish, alongside the major decline in the number of funds with positions in the stock, one of the steepest in our database.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 66 percentage points since the end of August 2012 when this system went live, returning a cumulative 123.1% vs. less than 57% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), there were no insider sales during the first half of 2015, but there was a key insider purchase by a top executive. Vice Chairman of the Board, CEO and President of Freeport-McMoRan Oil & Gas Division, James Flores purchased around 60,000 shares in June.
Taking this into account, let’s go over the new hedge fund actions encompassing Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX).
Hedge fund activity in Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)
When looking at the hedgies followed by Insider Monkey, Mario Gabelli’s GAMCO Investors had the largest position in the stock, as the fund held around 2.44 million shares valued at $46.2 million, accounting for 0.2% of its 13F portfolio. Ken Griffin‘s Citadel Investment Group had the second-most valuable position in Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), with around 2.3 million shares worth close to $43.6 million, comprising less than 0.1% of its total 13F portfolio. Remaining hedgies that were bullish consisted of Jamie Zimmerman of Litespeed Management, David E. Shaw’s D E Shaw, and Benjamin A. Smith’s Laurion Capital Management.
Since Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) has witnessed falling interest from hedge fund managers, we can see that there exists a select few fund managers that decided to sell off their entire stakes heading into the second quarter. It’s worth mentioning that John Overdeck and David Siegel‘s Two Sigma Advisors said goodbye to the largest stake of any of the funds tracked by Insider Monkey, as it sold around 1.19 million shares, while Phill Gross and Robert Atchinson of Adage Capital Management were right behind this move, as the fund managers said goodbye to the stock by offloading around 1.15 million shares during the first quarter. These moves are interesting, as aggregate hedge fund interest fell by 18 funds heading into the second quarter.
Hedge funds were bearish on the stock, as many hedge fund managers opted to either walk out of the stock or weaken their position in the stock during the first three months of this year. Coinciding with the hedge fund managers’ bearish sentiment, the stock has lost more than 50% of its value so far in 2015. Despite the fact that Morgan Stanley has expressed a positive outlook for the company (which it was doing even before the collapse, so it has a lot of ground to make up), considering the stock’s performance and bearish hedge fund sentiment we don’t recommend buying the stock at this time.
Disclosure: None
