It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Pan American Silver Corp. (NASDAQ:PAAS).
Is Pan American Silver Corp. (NASDAQ:PAAS) a buy right now? Investors who are in the know are in an optimistic mood. The number of bullish hedge fund bets inched up by 2 in recent months. Our calculations also showed that PAAS isn’t among the 30 most popular stocks among hedge funds.
To the average investor there are a large number of methods market participants have at their disposal to value publicly traded companies. A pair of the most useful methods are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the elite investment managers can outperform their index-focused peers by a healthy margin (see the details here).
We’re going to take a glance at the recent hedge fund action regarding Pan American Silver Corp. (NASDAQ:PAAS).
Hedge fund activity in Pan American Silver Corp. (NASDAQ:PAAS)
At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PAAS over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Pan American Silver Corp. (NASDAQ:PAAS) was held by Renaissance Technologies, which reported holding $96.3 million worth of stock at the end of March. It was followed by Slate Path Capital with a $27.3 million position. Other investors bullish on the company included D E Shaw, Highbridge Capital Management, and Sprott Asset Management.
Consequently, key hedge funds have jumped into Pan American Silver Corp. (NASDAQ:PAAS) headfirst. Passport Capital, managed by John Burbank, initiated the largest call position in Pan American Silver Corp. (NASDAQ:PAAS). Passport Capital had $13.3 million invested in the company at the end of the quarter. Jonathan Savitz’s Greywolf Capital Management also initiated a $10.2 million position during the quarter. The other funds with brand new PAAS positions are William Harnisch’s Peconic Partners LLC, Philip Hempleman’s Ardsley Partners, and John Burbank’s Passport Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Pan American Silver Corp. (NASDAQ:PAAS) but similarly valued. These stocks are Mercury General Corporation (NYSE:MCY), Murphy USA Inc. (NYSE:MUSA), Watts Water Technologies Inc (NYSE:WTS), and Texas Capital Bancshares Inc (NASDAQ:TCBI). This group of stocks’ market caps are similar to PAAS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MCY | 15 | 142808 | -3 |
| MUSA | 21 | 187051 | -3 |
| WTS | 15 | 331118 | -2 |
| TCBI | 19 | 203042 | -7 |
| Average | 17.5 | 216005 | -3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $216 million. That figure was $213 million in PAAS’s case. Murphy USA Inc. (NYSE:MUSA) is the most popular stock in this table. On the other hand Mercury General Corporation (NYSE:MCY) is the least popular one with only 15 bullish hedge fund positions. Pan American Silver Corp. (NASDAQ:PAAS) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately PAAS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PAAS investors were disappointed as the stock returned -10.8% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
