Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Platinum Group Metals Ltd. (NYSE:PLG).
Platinum Group Metals Ltd. (NYSE:PLG) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of September. 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 Rosehill Resources Inc. (NASDAQ:ROSE), Orion Energy Systems, Inc. (NASDAQ:OESX), and A-Mark Precious Metals, Inc. (NASDAQ:AMRK) to gather more data points. Our calculations also showed that PLG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Michael Hintze of CQS Cayman LP
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s view the key hedge fund action regarding Platinum Group Metals Ltd. (NYSE:PLG).
What does smart money think about Platinum Group Metals Ltd. (NYSE:PLG)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in PLG a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, CQS Cayman LP, managed by Michael Hintze, holds the biggest position in Platinum Group Metals Ltd. (NYSE:PLG). CQS Cayman LP has a $1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On CQS Cayman LP’s heels is Eric Sprott of Sprott Asset Management, with a $0.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that hold long positions encompass Renaissance Technologies, Ken Griffin’s Citadel Investment Group and . In terms of the portfolio weights assigned to each position Sprott Asset Management allocated the biggest weight to Platinum Group Metals Ltd. (NYSE:PLG), around 0.1% of its 13F portfolio. CQS Cayman LP is also relatively very bullish on the stock, earmarking 0.04 percent of its 13F equity portfolio to PLG.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Platinum Group Metals Ltd. (NYSE:PLG) but similarly valued. These stocks are Rosehill Resources Inc. (NASDAQ:ROSE), Orion Energy Systems, Inc. (NASDAQ:OESX), A-Mark Precious Metals, Inc. (NASDAQ:AMRK), and Aravive, Inc. (NASDAQ:ARAV). All of these stocks’ market caps are similar to PLG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ROSE | 5 | 2051 | 0 |
| OESX | 6 | 7956 | -1 |
| AMRK | 3 | 1227 | 0 |
| ARAV | 4 | 9718 | 0 |
| Average | 4.5 | 5238 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $1 million in PLG’s case. Orion Energy Systems, Inc. (NASDAQ:OESX) is the most popular stock in this table. On the other hand A-Mark Precious Metals, Inc. (NASDAQ:AMRK) is the least popular one with only 3 bullish hedge fund positions. Platinum Group Metals Ltd. (NYSE:PLG) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately PLG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PLG investors were disappointed as the stock returned -8.2% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.