Is Steel Dynamics, Inc. (NASDAQ:STLD) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Steel Dynamics, Inc. (NASDAQ:STLD) was in 25 hedge funds’ portfolios at the end of September. STLD shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. There were 31 hedge funds in our database with STLD holdings at the end of the previous quarter. Our calculations also showed that STLD 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.
Ray Dalio of Bridgewater Associates
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the fresh hedge fund action surrounding Steel Dynamics, Inc. (NASDAQ:STLD).
Hedge fund activity in Steel Dynamics, Inc. (NASDAQ:STLD)
At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from the second quarter of 2019. On the other hand, there were a total of 28 hedge funds with a bullish position in STLD a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, David E. Shaw’s D E Shaw has the largest position in Steel Dynamics, Inc. (NASDAQ:STLD), worth close to $168.2 million, amounting to 0.2% of its total 13F portfolio. On D E Shaw’s heels is Cliff Asness of AQR Capital Management, with a $80.2 million position; 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism comprise Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Centenus Global Management allocated the biggest weight to Steel Dynamics, Inc. (NASDAQ:STLD), around 0.84% of its portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.56 percent of its 13F equity portfolio to STLD.
Judging by the fact that Steel Dynamics, Inc. (NASDAQ:STLD) has experienced a decline in interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedge funds who were dropping their full holdings by the end of the third quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dropped the biggest investment of the “upper crust” of funds followed by Insider Monkey, valued at about $35.8 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its stock, about $12.8 million worth. These transactions are important to note, as total hedge fund interest dropped by 6 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Steel Dynamics, Inc. (NASDAQ:STLD) but similarly valued. These stocks are PVH Corp (NYSE:PVH), Signature Bank (NASDAQ:SBNY), New Residential Investment Corp (NYSE:NRZ), and The Gap Inc. (NYSE:GPS). All of these stocks’ market caps are similar to STLD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PVH | 27 | 1027637 | -5 |
| SBNY | 32 | 502279 | 3 |
| NRZ | 19 | 141891 | 3 |
| GPS | 25 | 148276 | 4 |
| Average | 25.75 | 455021 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $455 million. That figure was $516 million in STLD’s case. Signature Bank (NASDAQ:SBNY) is the most popular stock in this table. On the other hand New Residential Investment Corp (NYSE:NRZ) is the least popular one with only 19 bullish hedge fund positions. Steel Dynamics, Inc. (NASDAQ:STLD) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on STLD as the stock returned 13.2% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
