Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Franco-Nevada Corporation (NYSE:FNV).
Franco-Nevada Corporation (NYSE:FNV) investors should pay attention to an increase in support from the world’s most elite money managers lately. Our calculations also showed that FNV isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing Franco-Nevada Corporation (NYSE:FNV).
How are hedge funds trading Franco-Nevada Corporation (NYSE:FNV)?
Heading into the first quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in FNV a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the most valuable position in Franco-Nevada Corporation (NYSE:FNV), worth close to $479.3 million, corresponding to 0.4% of its total 13F portfolio. Coming in second is Murray Stahl of Horizon Asset Management, with a $117 million position; 3.3% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish include Noam Gottesman’s GLG Partners, Ken Griffin’s Citadel Investment Group and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Waratah Capital Advisors allocated the biggest weight to Franco-Nevada Corporation (NYSE:FNV), around 3.37% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, earmarking 3.32 percent of its 13F equity portfolio to FNV.
As aggregate interest increased, key hedge funds have jumped into Franco-Nevada Corporation (NYSE:FNV) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most valuable position in Franco-Nevada Corporation (NYSE:FNV). Arrowstreet Capital had $0.4 million invested in the company at the end of the quarter. Kevin Parker’s Sustainable Insight Capital Management also made a $0.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Karim Abbadi and Edward McBride’s Centiva Capital, Donald Sussman’s Paloma Partners, and Ronald Hua’s Qtron Investments.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Franco-Nevada Corporation (NYSE:FNV) but similarly valued. These stocks are Cadence Design Systems Inc (NASDAQ:CDNS), D.R. Horton, Inc. (NYSE:DHI), Interactive Brokers Group, Inc. (NASDAQ:IBKR), and Ryanair Holdings plc (NASDAQ:RYAAY). This group of stocks’ market values match FNV’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CDNS | 42 | 1534323 | 6 |
| DHI | 51 | 2240658 | -8 |
| IBKR | 29 | 886155 | 4 |
| RYAAY | 22 | 829569 | 0 |
| Average | 36 | 1372676 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1373 million. That figure was $797 million in FNV’s case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Ryanair Holdings plc (NASDAQ:RYAAY) is the least popular one with only 22 bullish hedge fund positions. Franco-Nevada Corporation (NYSE:FNV) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on FNV as the stock returned -5.7% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
