U.S. markets closed

Did Hedge Funds Drop The Ball On Coeur d’Alene Mines Corporation (CDE) ?

Debasis Saha

"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That's why we believe it would be worthwhile to take a look at the hedge fund sentiment on Coeur d'Alene Mines Corporation (NYSE:CDE) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Coeur d'Alene Mines Corporation (NYSE:CDE) has experienced an increase in activity from the world's largest hedge funds lately. Our calculations also showed that CDE 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.

5 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 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 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 stocks that are in our short portfolio.

[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]

RENAISSANCE TECHNOLOGIES

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's check out the latest hedge fund action surrounding Coeur d'Alene Mines Corporation (NYSE:CDE).

How have hedgies been trading Coeur d'Alene Mines Corporation (NYSE:CDE)?

At Q3's end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the second quarter of 2019. On the other hand, there were a total of 13 hedge funds with a bullish position in CDE a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Is CDE A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Coeur d'Alene Mines Corporation (NYSE:CDE), which was worth $20.5 million at the end of the third quarter. On the second spot was Millennium Management which amassed $9.6 million worth of shares. Citadel Investment Group, Sprott Asset Management, and Winton Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sprott Asset Management allocated the biggest weight to Coeur d'Alene Mines Corporation (NYSE:CDE), around 1.74% of its 13F portfolio. Sloane Robinson Investment Management is also relatively very bullish on the stock, earmarking 0.79 percent of its 13F equity portfolio to CDE.

Now, some big names have been driving this bullishness. JS Capital, managed by Jonathan Soros, initiated the largest position in Coeur d'Alene Mines Corporation (NYSE:CDE). JS Capital had $0.4 million invested in the company at the end of the quarter. Mike Vranos's Ellington also initiated a $0.2 million position during the quarter. The following funds were also among the new CDE investors: Cliff Asness's AQR Capital Management, Nick Thakore's Diametric Capital, and Brandon Haley's Holocene Advisors.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Coeur d'Alene Mines Corporation (NYSE:CDE) but similarly valued. We will take a look at AZZ Incorporated (NYSE:AZZ), Radware Ltd. (NASDAQ:RDWR), Orchard Therapeutics plc (NASDAQ:ORTX), and Marten Transport, Ltd (NASDAQ:MRTN). This group of stocks' market valuations are similar to CDE's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AZZ,15,45998,1 RDWR,15,309696,-1 ORTX,19,287447,-2 MRTN,22,60918,4 Average,17.75,176015,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $52 million in CDE's case. Marten Transport, Ltd (NASDAQ:MRTN) is the most popular stock in this table. On the other hand AZZ Incorporated (NYSE:AZZ) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Coeur d'Alene Mines Corporation (NYSE:CDE) is even less popular than AZZ. Hedge funds clearly dropped the ball on CDE as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 CDE as the stock returned 36.4% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

Related Content