Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 4 percentage points through September 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Is Hecla Mining Company (NYSE:HL) undervalued? Investors who are in the know are selling. The number of long hedge fund bets fell by 1 recently. Our calculations also showed that HL isn't among the 30 most popular stocks among hedge funds (see the video below). HL was in 8 hedge funds' portfolios at the end of the second quarter of 2019. There were 9 hedge funds in our database with HL positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 40 percentage points since May 2014 through May 30, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the fresh hedge fund action regarding Hecla Mining Company (NYSE:HL).
How are hedge funds trading Hecla Mining Company (NYSE:HL)?
Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HL over the last 16 quarters. So, let's check out 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 Millennium Management, which reported holding $7.7 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $2.2 million position. Other investors bullish on the company included Sprott Asset Management, Citadel Investment Group, and Winton Capital Management.
Since Hecla Mining Company (NYSE:HL) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there exists a select few money managers that elected to cut their positions entirely in the second quarter. Intriguingly, Brian Ashford-Russell and Tim Woolley's Polar Capital dumped the largest investment of all the hedgies watched by Insider Monkey, totaling close to $6.3 million in stock. Ken Griffin's fund, Citadel Investment Group, also dumped its stock, about $1.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds in the second quarter.
Let's go over hedge fund activity in other stocks similar to Hecla Mining Company (NYSE:HL). These stocks are Thermon Group Holdings, Inc. (NYSE:THR), Retrophin Inc (NASDAQ:RTRX), Connecticut Water Service, Inc. (NASDAQ:CTWS), and Baytex Energy Corp (NYSE:BTE). This group of stocks' market valuations are closest to HL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THR,10,46417,2 RTRX,19,351604,-4 CTWS,5,24877,1 BTE,7,48534,-3 Average,10.25,117858,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $14 million in HL's case. Retrophin Inc (NASDAQ:RTRX) is the most popular stock in this table. On the other hand Connecticut Water Service, Inc. (NASDAQ:CTWS) is the least popular one with only 5 bullish hedge fund positions. Hecla Mining Company (NYSE:HL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HL investors were disappointed as the stock returned -2% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.