While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Southern Copper Corporation (NYSE:SCCO).
Is Southern Copper Corporation (NYSE:SCCO) the right pick for your portfolio? Hedge funds were in a pessimistic mood. The number of long hedge fund bets fell by 4 in recent months. Southern Copper Corporation (NYSE:SCCO) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistic is 27. Our calculations also showed that SCCO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 27 hedge funds in our database with SCCO positions at the end of the first quarter.
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 79 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.
Ian Wace of Marshall Wace
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. Now let’s take a peek at the latest hedge fund action encompassing Southern Copper Corporation (NYSE:SCCO).
Do Hedge Funds Think SCCO Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the first quarter of 2020. By comparison, 19 hedge funds held shares or bullish call options in SCCO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fisher Asset Management was the largest shareholder of Southern Copper Corporation (NYSE:SCCO), with a stake worth $245.4 million reported as of the end of June. Trailing Fisher Asset Management was Arrowstreet Capital, which amassed a stake valued at $95.5 million. Marshall Wace LLP, Renaissance Technologies, and Millennium Management 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 Navellier & Associates allocated the biggest weight to Southern Copper Corporation (NYSE:SCCO), around 0.63% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, designating 0.33 percent of its 13F equity portfolio to SCCO.
Judging by the fact that Southern Copper Corporation (NYSE:SCCO) has faced declining sentiment from the smart money, it’s safe to say that there lies a certain “tier” of fund managers who were dropping their full holdings by the end of the second quarter. At the top of the heap, Ken Heebner’s Capital Growth Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, valued at about $22.7 million in stock. Ryan Tolkin (CIO)’s fund, Schonfeld Strategic Advisors, also cut its stock, about $1.8 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 4 funds by the end of the second quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Southern Copper Corporation (NYSE:SCCO) but similarly valued. We will take a look at KLA Corporation (NASDAQ:KLAC), America Movil SAB de CV (NYSE:AMX), América Móvil, S.A.B. de C.V. (NYSE:AMOV), Roper Technologies Inc. (NYSE:ROP), Palantir Technologies Inc. (NYSE:PLTR), Lululemon Athletica inc. (NASDAQ:LULU), and Thomson Reuters Corporation (NYSE:TRI). This group of stocks’ market valuations are similar to SCCO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KLAC | 45 | 1374639 | 5 |
| AMX | 13 | 114474 | -2 |
| AMOV | 1 | 256 | 0 |
| ROP | 41 | 1570401 | -1 |
| PLTR | 26 | 1361219 | -6 |
| LULU | 46 | 952983 | 5 |
| TRI | 27 | 354844 | -1 |
| Average | 28.4 | 818402 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.4 hedge funds with bullish positions and the average amount invested in these stocks was $818 million. That figure was $552 million in SCCO’s case. Lululemon Athletica inc. (NASDAQ:LULU) is the most popular stock in this table. On the other hand América Móvil, S.A.B. de C.V. (NYSE:AMOV) is the least popular one with only 1 bullish hedge fund positions. Southern Copper Corporation (NYSE:SCCO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SCCO is 51. 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 SCCO wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SCCO investors were disappointed as the stock returned 1.1% 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.
Follow Southern Copper Corp (NYSE:SCCO)
Follow Southern Copper Corp (NYSE:SCCO)
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Disclosure: None. This article was originally published at Insider Monkey.
