Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Vale SA (NYSE:VALE).
Vale SA (NYSE:VALE) investors should pay attention to a decrease in enthusiasm from smart money recently. Vale SA (NYSE:VALE) was in 27 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 36. There were 31 hedge funds in our database with VALE positions at the end of the first quarter. Our calculations also showed that VALE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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.
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. Keeping this in mind we’re going to go over the key hedge fund action surrounding Vale SA (NYSE:VALE).
Do Hedge Funds Think VALE Is A Good Stock To Buy Now?
At Q2’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards VALE over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, GQG Partners was the largest shareholder of Vale SA (NYSE:VALE), with a stake worth $998.9 million reported as of the end of June. Trailing GQG Partners was Fisher Asset Management, which amassed a stake valued at $837.2 million. Arrowstreet Capital, AQR Capital Management, and Contrarian Capital 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 Contrarian Capital allocated the biggest weight to Vale SA (NYSE:VALE), around 29.43% of its 13F portfolio. Kadensa Capital is also relatively very bullish on the stock, designating 9.67 percent of its 13F equity portfolio to VALE.
Seeing as Vale SA (NYSE:VALE) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of funds who were dropping their entire stakes heading into Q3. It’s worth mentioning that Stanley Druckenmiller’s Duquesne Capital dropped the biggest investment of all the hedgies followed by Insider Monkey, worth about $22.4 million in stock. Josh Donfeld and David Rogers’s fund, Castle Hook Partners, also dumped its stock, about $19.3 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks similar to Vale SA (NYSE:VALE). These stocks are The Estee Lauder Companies Inc (NYSE:EL), 3M Company (NYSE:MMM), Advanced Micro Devices, Inc. (NASDAQ:AMD), Zoom Video Communications, Inc. (NASDAQ:ZM), Diageo plc (NYSE:DEO), Square, Inc. (NYSE:SQ), and Deere & Company (NYSE:DE). All of these stocks’ market caps resemble VALE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EL | 50 | 4129744 | -9 |
| MMM | 42 | 1582540 | 1 |
| AMD | 63 | 4610011 | 1 |
| ZM | 59 | 8480712 | 5 |
| DEO | 20 | 891081 | -2 |
| SQ | 94 | 10327761 | 2 |
| DE | 52 | 2173962 | 1 |
| Average | 54.3 | 4599402 | -0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 54.3 hedge funds with bullish positions and the average amount invested in these stocks was $4599 million. That figure was $3574 million in VALE’s case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 20 bullish hedge fund positions. Vale SA (NYSE:VALE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VALE is 28.2. 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 24.9% in 2021 through October 15th and surpassed the market again by 4.5 percentage points. Unfortunately VALE wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); VALE investors were disappointed as the stock returned -28.4% since the end of June (through 10/15) 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 Vale S A (NYSE:VALE)
Follow Vale S A (NYSE:VALE)
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Disclosure: None. This article was originally published at Insider Monkey.
