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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 ArcelorMittal (NYSE:MT) at the end of the second quarter and determine whether the smart money was really smart about this stock.
ArcelorMittal (NYSE:MT) was in 19 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 25. MT investors should be aware of an increase in support from the world's most elite money managers of late. There were 13 hedge funds in our database with MT holdings at the end of March. Our calculations also showed that MT isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Michael Platt of BlueCrest Capital Mgmt.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let's take a glance at the new hedge fund action encompassing ArcelorMittal (NYSE:MT).
Hedge fund activity in ArcelorMittal (NYSE:MT)
Heading into the third quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 46% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MT over the last 20 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of ArcelorMittal (NYSE:MT), with a stake worth $119.6 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $29.3 million. Arrowstreet Capital, BlueCrest Capital Mgmt., and Balyasny Asset 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 Jade Capital Advisors allocated the biggest weight to ArcelorMittal (NYSE:MT), around 3.16% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, designating 1.41 percent of its 13F equity portfolio to MT.
Consequently, some big names have been driving this bullishness. BlueCrest Capital Mgmt., managed by Michael Platt and William Reeves, created the most outsized position in ArcelorMittal (NYSE:MT). BlueCrest Capital Mgmt. had $20.7 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson's Adage Capital Management also made a $10.7 million investment in the stock during the quarter. The other funds with brand new MT positions are George Soros's Soros Fund Management, Robert Bishop's Impala Asset Management, and Highbridge Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as ArcelorMittal (NYSE:MT) but similarly valued. These stocks are Ingersoll Rand Inc. (NYSE:IR), Omnicom Group Inc. (NYSE:OMC), Xylem Inc (NYSE:XYL), NortonLifeLock Inc. (NASDAQ:NLOK), Arch Capital Group Ltd. (NASDAQ:ACGL), PagSeguro Digital Ltd. (NYSE:PAGS), and Expedia Group Inc (NASDAQ:EXPE). This group of stocks' market caps are closest to MT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IR,31,407546,-2 OMC,31,588433,0 XYL,22,504853,-5 NLOK,37,1370802,-5 ACGL,36,1077194,3 PAGS,27,1013173,7 EXPE,61,3109490,20 Average,35,1153070,2.6 [/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 $1153 million. That figure was $267 million in MT's case. Expedia Group Inc (NASDAQ:EXPE) is the most popular stock in this table. On the other hand Xylem Inc (NYSE:XYL) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks ArcelorMittal (NYSE:MT) is even less popular than XYL. Our overall hedge fund sentiment score for MT is 32.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on MT as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on MT as the stock returned 23.5% during the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.