Did Hedge Funds Make The Right Call On Wheaton Precious Metals Corp. (WPM) ?
At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Wheaton Precious Metals Corp. (NYSE:WPM) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Is Wheaton Precious Metals Corp. (NYSE:WPM) a bargain? Hedge funds were taking a pessimistic view. The number of long hedge fund bets were cut by 5 recently. Our calculations also showed that WPM 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). WPM was in 25 hedge funds' portfolios at the end of the first quarter of 2020. There were 30 hedge funds in our database with WPM 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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John Overdeck of Two Sigma Advisors[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like "the Starbucks of cannabis" to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let's take a glance at the new hedge fund action encompassing Wheaton Precious Metals Corp. (NYSE:WPM).
Hedge fund activity in Wheaton Precious Metals Corp. (NYSE:WPM)
At Q1's end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WPM over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Eric Sprott's Sprott Asset Management has the biggest position in Wheaton Precious Metals Corp. (NYSE:WPM), worth close to $106.2 million, accounting for 9.7% of its total 13F portfolio. The second most bullish fund manager is Horizon Asset Management, managed by Murray Stahl, which holds a $95.6 million position; the fund has 4.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish encompass Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and David Iben's Kopernik Global Investors. In terms of the portfolio weights assigned to each position Kopernik Global Investors allocated the biggest weight to Wheaton Precious Metals Corp. (NYSE:WPM), around 10.32% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, earmarking 9.74 percent of its 13F equity portfolio to WPM.
Because Wheaton Precious Metals Corp. (NYSE:WPM) has faced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of fund managers who sold off their full holdings heading into Q4. Interestingly, Israel Englander's Millennium Management dropped the biggest position of all the hedgies followed by Insider Monkey, valued at close to $13 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund cut about $11.7 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 5 funds heading into Q4.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Wheaton Precious Metals Corp. (NYSE:WPM) but similarly valued. We will take a look at Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), MPLX LP (NYSE:MPLX), Laboratory Corp. of America Holdings (NYSE:LH), and Cincinnati Financial Corporation (NASDAQ:CINF). This group of stocks' market caps are similar to WPM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALNY,34,840647,1 MPLX,11,179942,-4 LH,45,1054505,-8 CINF,31,484343,0 Average,30.25,639859,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $640 million. That figure was $545 million in WPM's case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 11 bullish hedge fund positions. Wheaton Precious Metals Corp. (NYSE:WPM) is not the least popular stock in this group but hedge fund interest is still below average. 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 gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on WPM as the stock returned 60.4% during the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
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