Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Southern Copper Corporation (NYSE:SCCO) changed recently.
Southern Copper Corporation (NYSE:SCCO) investors should be aware of an increase in activity from the world's largest hedge funds recently. Our calculations also showed that SCCO isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. We're going to go over the recent hedge fund action encompassing Southern Copper Corporation (NYSE:SCCO).
What does smart money think about Southern Copper Corporation (NYSE:SCCO)?
At the end of the second quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SCCO over the last 16 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Southern Copper Corporation (NYSE:SCCO), with a stake worth $165.4 million reported as of the end of March. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $15.3 million. Millennium Management, Citadel Investment Group, and Bridgewater Associates were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, key money managers have been driving this bullishness. D E Shaw, managed by David E. Shaw, initiated the biggest position in Southern Copper Corporation (NYSE:SCCO). D E Shaw had $3.1 million invested in the company at the end of the quarter. Sara Nainzadeh's Centenus Global Management also made a $2.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Perella Weinberg Partners, Dmitry Balyasny's Balyasny Asset Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's go over hedge fund activity in other stocks similar to Southern Copper Corporation (NYSE:SCCO). We will take a look at Amphenol Corporation (NYSE:APH), Hilton Worldwide Holdings Inc (NYSE:HLT), JD.Com Inc (NASDAQ:JD), and Consolidated Edison, Inc. (NYSE:ED). This group of stocks' market caps are closest to SCCO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APH,25,504483,0 HLT,44,4372251,-7 JD,45,5156730,-3 ED,26,1401907,3 Average,35,2858843,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $2859 million. That figure was $203 million in SCCO's case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand Amphenol Corporation (NYSE:APH) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Southern Copper Corporation (NYSE:SCCO) is even less popular than APH. Hedge funds dodged a bullet by taking a bearish stance towards SCCO. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SCCO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SCCO investors were disappointed as the stock returned -11% 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.
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