Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 HudBay Minerals Inc Ord Shs (NYSE:HBM).
HudBay Minerals Inc Ord Shs (NYSE:HBM) has experienced an increase in hedge fund sentiment of late. HBM was in 13 hedge funds’ portfolios at the end of the third quarter of 2019. There were 12 hedge funds in our database with HBM positions at the end of the previous quarter. Our calculations also showed that HBM 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.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s review the key hedge fund action encompassing HudBay Minerals Inc Ord Shs (NYSE:HBM).
What does smart money think about HudBay Minerals Inc Ord Shs (NYSE:HBM)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in HBM a year ago. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, GMT Capital was the largest shareholder of HudBay Minerals Inc Ord Shs (NYSE:HBM), with a stake worth $100.1 million reported as of the end of September. Trailing GMT Capital was Renaissance Technologies, which amassed a stake valued at $18.6 million. Citadel Investment Group, Encompass Capital Advisors, and Two Sigma Advisors 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 GMT Capital allocated the biggest weight to HudBay Minerals Inc Ord Shs (NYSE:HBM), around 3.69% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, designating 0.32 percent of its 13F equity portfolio to HBM.
Now, key hedge funds have been driving this bullishness. Encompass Capital Advisors, managed by Todd J. Kantor, created the biggest position in HudBay Minerals Inc Ord Shs (NYSE:HBM). Encompass Capital Advisors had $4.7 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $0.1 million position during the quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as HudBay Minerals Inc Ord Shs (NYSE:HBM) but similarly valued. We will take a look at QAD Inc. (NASDAQ:QADA), Athenex, Inc. (NASDAQ:ATNX), Epizyme Inc (NASDAQ:EPZM), and Third Point Reinsurance Ltd (NYSE:TPRE). This group of stocks’ market values are similar to HBM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QADA | 14 | 128085 | 3 |
| ATNX | 15 | 276846 | 5 |
| EPZM | 17 | 265859 | -4 |
| TPRE | 19 | 68008 | -1 |
| Average | 16.25 | 184700 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $137 million in HBM’s case. Third Point Reinsurance Ltd (NYSE:TPRE) is the most popular stock in this table. On the other hand QAD Inc. (NASDAQ:QADA) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks HudBay Minerals Inc Ord Shs (NYSE:HBM) is even less popular than QADA. Hedge funds dodged a bullet by taking a bearish stance towards HBM. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HBM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HBM investors were disappointed as the stock returned -9.1% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
