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 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% 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 Hecla Mining Company (NYSE:HL).
Hecla Mining Company (NYSE:HL) has experienced a decrease in hedge fund interest of late. HL was in 9 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 11 hedge funds in our database with HL positions at the end of the previous quarter. Our calculations also showed that HL isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
We’re going to take a gander at the fresh hedge fund action encompassing Hecla Mining Company (NYSE:HL).
How are hedge funds trading Hecla Mining Company (NYSE:HL)?
At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HL over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Hecla Mining Company (NYSE:HL) was held by Royce & Associates, which reported holding $4 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $3.6 million position. Other investors bullish on the company included Citadel Investment Group, Sprott Asset Management, and Millennium Management.
Due to the fact that Hecla Mining Company (NYSE:HL) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds who sold off their positions entirely last quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw said goodbye to the biggest position of the “upper crust” of funds followed by Insider Monkey, worth about $0.9 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also cut its stock, about $0.2 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Hecla Mining Company (NYSE:HL) but similarly valued. We will take a look at Myovant Sciences Ltd. (NYSE:MYOV), Ambarella Inc (NASDAQ:AMBA), KKR Real Estate Finance Trust Inc. (NYSE:KREF), and LendingClub Corp (NYSE:LC). This group of stocks’ market values are similar to HL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MYOV | 5 | 81654 | -2 |
| AMBA | 14 | 74667 | -1 |
| KREF | 8 | 36227 | 0 |
| LC | 7 | 3096 | -2 |
| Average | 8.5 | 48911 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.5 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $15 million in HL’s case. Ambarella Inc (NASDAQ:AMBA) is the most popular stock in this table. On the other hand Myovant Sciences Ltd. (NYSE:MYOV) is the least popular one with only 5 bullish hedge fund positions. Hecla Mining Company (NYSE:HL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately HL wasn’t nearly as popular as these 15 stock and hedge funds that were betting on HL were disappointed as the stock returned -11.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
