The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Peabody Energy Corporation (NYSE:BTU) based on those filings.
Is Peabody Energy Corporation (NYSE:BTU) an outstanding investment today? The best stock pickers are becoming less hopeful. The number of bullish hedge fund positions went down by 4 lately. Our calculations also showed that BTU isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). BTU was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. There were 29 hedge funds in our database with BTU positions at the end of the previous quarter.
Video: 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’ 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Paul Singer of Elliott Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the key hedge fund action encompassing Peabody Energy Corporation (NYSE:BTU).
What does smart money think about Peabody Energy Corporation (NYSE:BTU)?
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the fourth quarter of 2019. On the other hand, there were a total of 27 hedge funds with a bullish position in BTU a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Elliott Management, managed by Paul Singer, holds the biggest position in Peabody Energy Corporation (NYSE:BTU). Elliott Management has a $83.9 million position in the stock, comprising 1.6% of its 13F portfolio. Sitting at the No. 2 spot is Platinum Asset Management, led by Kerr Neilson, holding a $11.2 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish contain Renaissance Technologies, Jeremy Hosking’s Hosking Partners and Jon Bauer’s Contrarian Capital. In terms of the portfolio weights assigned to each position Contrarian Capital allocated the biggest weight to Peabody Energy Corporation (NYSE:BTU), around 1.84% of its 13F portfolio. Elliott Management is also relatively very bullish on the stock, designating 1.55 percent of its 13F equity portfolio to BTU.
Due to the fact that Peabody Energy Corporation (NYSE:BTU) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few funds that decided to sell off their positions entirely last quarter. At the top of the heap, Adam Peterson’s Magnolia Capital Fund cut the biggest position of all the hedgies monitored by Insider Monkey, valued at close to $2.7 million in stock, and Randall Smith’s Alden Global Capital was right behind this move, as the fund sold off about $1.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Peabody Energy Corporation (NYSE:BTU). These stocks are Cambridge Bancorp (NASDAQ:CATC), Summit Financial Group, Inc. (NASDAQ:SMMF), Lannett Company, Inc. (NYSE:LCI), and Fulcrum Therapeutics, Inc. (NASDAQ:FULC). All of these stocks’ market caps are similar to BTU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CATC | 9 | 15932 | 2 |
| SMMF | 2 | 6045 | -1 |
| LCI | 8 | 31303 | -3 |
| FULC | 6 | 36215 | -2 |
| Average | 6.25 | 22374 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $129 million in BTU’s case. Cambridge Bancorp (NASDAQ:CATC) is the most popular stock in this table. On the other hand Summit Financial Group, Inc. (NASDAQ:SMMF) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Peabody Energy Corporation (NYSE:BTU) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on BTU as the stock returned 55.5% so far in Q2 (through June 10th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
