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Hedge Funds Cashed Out Of Southern Copper Corporation (SCCO) Too Early

Nina Todic

"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Southern Copper Corporation (NYSE:SCCO) and see how it was affected.

Is Southern Copper Corporation (NYSE:SCCO) ready to rally soon? Money managers are selling. The number of bullish hedge fund positions retreated by 2 recently. Our calculations also showed that SCCO 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

At the moment there are several signals investors can use to analyze publicly traded companies. A pair of the best signals are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the top investment managers can trounce their index-focused peers by a solid amount (see the details here).

[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman of GLG Partners[/caption]

Noam Gottesman GLG Partners

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. We're going to check out the latest hedge fund action regarding Southern Copper Corporation (NYSE:SCCO).

What does smart money think about Southern Copper Corporation (NYSE:SCCO)?

Heading into the fourth quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the second quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in SCCO a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in Southern Copper Corporation (NYSE:SCCO), which was worth $137.8 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $12.3 million worth of shares. D E Shaw, GLG Partners, and Millennium 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 Fisher Asset Management allocated the biggest weight to Southern Copper Corporation (NYSE:SCCO), around 0.15% of its 13F portfolio. GLG Partners is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to SCCO.

Since Southern Copper Corporation (NYSE:SCCO) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there exists a select few funds that elected to cut their full holdings by the end of the third quarter. At the top of the heap, Sara Nainzadeh's Centenus Global Management sold off the largest position of the "upper crust" of funds followed by Insider Monkey, comprising close to $2.3 million in stock, and Perella Weinberg Partners was right behind this move, as the fund sold off about $1.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds by the end of the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Southern Copper Corporation (NYSE:SCCO) but similarly valued. We will take a look at Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), AutoZone, Inc. (NYSE:AZO), FirstEnergy Corp. (NYSE:FE), and Verisk Analytics, Inc. (NASDAQ:VRSK). All of these stocks' market caps are similar to SCCO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ERIC,20,352546,1 AZO,35,1328778,-2 FE,32,2451597,-2 VRSK,30,668085,0 Average,29.25,1200252,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $1200 million. That figure was $175 million in SCCO's case. AutoZone, Inc. (NYSE:AZO) is the most popular stock in this table. On the other hand Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Southern Copper Corporation (NYSE:SCCO) is even less popular than ERIC. Hedge funds clearly dropped the ball on SCCO 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 SCCO as the stock returned 12.6% 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.

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