It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 15.1% over the last 12 months (vs. 5.6% gain for SPY), with 53% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Hudbay Minerals Inc. (NYSE:HBM).
Hudbay Minerals Inc. (NYSE:HBM) shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. HBM was in 13 hedge funds’ portfolios at the end of the third quarter of 2018. There were 12 hedge funds in our database with HBM holdings at the end of the previous quarter. Our calculations also showed that hbm isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We’re going to take a gander at the key hedge fund action surrounding Hudbay Minerals Inc. (NYSE:HBM).
How are hedge funds trading Hudbay Minerals Inc. (NYSE:HBM)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in HBM at the beginning of this year. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Hudbay Minerals Inc. (NYSE:HBM) was held by GMT Capital, which reported holding $147.7 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $11.1 million position. Other investors bullish on the company included GLG Partners, SailingStone Capital Partners, and Renaissance Technologies.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Anchorage Advisors, managed by Kevin Michael Ulrich and Anthony Davis, established the biggest position in Hudbay Minerals Inc. (NYSE:HBM). Anchorage Advisors had $5.1 million invested in the company at the end of the quarter.
Let’s now take a look at hedge fund activity in other stocks similar to HudBay Minerals Inc (NYSE:HBM). We will take a look at McGrath RentCorp (NASDAQ:MGRC), Arcos Dorados Holding Inc (NYSE:ARCO), AZZ Incorporated (NYSE:AZZ), and Cardiovascular Systems Inc (NASDAQ:CSII). This group of stocks’ market valuations match HBM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MGRC | 22 | 140000 | 2 |
| ARCO | 18 | 104370 | 5 |
| AZZ | 14 | 46315 | 4 |
| CSII | 22 | 184900 | 3 |
| Average | 19 | 118896 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $119 million. That figure was $198 million in HBM’s case. McGrath RentCorp (NASDAQ:MGRC) is the most popular stock in this table. On the other hand AZZ Incorporated (NYSE:AZZ) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks HudBay Minerals Inc (NYSE:HBM) is even less popular than AZZ. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
