We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards United States Steel Corporation (NYSE:X) and determine whether hedge funds skillfully traded this stock.
Is United States Steel Corporation (NYSE:X) a buy right now? The smart money was taking a bullish view. The number of long hedge fund positions inched up by 3 in recent months. United States Steel Corporation (NYSE:X) was in 20 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 40. Our calculations also showed that X 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). There were 17 hedge funds in our database with X holdings at the end of March. 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.
Paul Tudor Jones of Tudor Investment Corp
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 we're going to take a peek at the latest hedge fund action regarding United States Steel Corporation (NYSE:X).
What have hedge funds been doing with United States Steel Corporation (NYSE:X)?
At the end of June, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in X a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in United States Steel Corporation (NYSE:X) was held by Maple Rock Capital, which reported holding $24.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $21.3 million position. Other investors bullish on the company included Tudor Investment Corp, D E Shaw, and OZ Management. In terms of the portfolio weights assigned to each position Maple Rock Capital allocated the biggest weight to United States Steel Corporation (NYSE:X), around 4.88% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, setting aside 0.83 percent of its 13F equity portfolio to X.
Now, key money managers were leading the bulls' herd. GLG Partners, managed by Noam Gottesman, initiated the most valuable position in United States Steel Corporation (NYSE:X). GLG Partners had $2.9 million invested in the company at the end of the quarter. George Soros's Soros Fund Management also initiated a $2.7 million position during the quarter. The other funds with brand new X positions are Ken Griffin's Citadel Investment Group, Boaz Weinstein's Saba Capital, and Matthew L Pinz's Pinz Capital.
Let's go over hedge fund activity in other stocks similar to United States Steel Corporation (NYSE:X). These stocks are Sonos, Inc. (NASDAQ:SONO), Mersana Therapeutics, Inc. (NASDAQ:MRSN), Walker & Dunlop Inc. (NYSE:WD), Intercept Pharmaceuticals Inc (NASDAQ:ICPT), Spirit Airlines Incorporated (NYSE:SAVE), MakeMyTrip Limited (NASDAQ:MMYT), and United Community Banks Inc (NASDAQ:UCBI). This group of stocks' market caps match X's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SONO,35,327682,2 MRSN,25,581618,8 WD,18,73653,-1 ICPT,22,215147,3 SAVE,23,98598,-5 MMYT,10,28493,1 UCBI,17,25165,6 Average,21.4,192908,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $54 million in X's case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand MakeMyTrip Limited (NASDAQ:MMYT) is the least popular one with only 10 bullish hedge fund positions. United States Steel Corporation (NYSE:X) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for X is 23. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 surpassed the market by 19.3 percentage points. Unfortunately X wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); X investors were disappointed as the stock returned 1.8% in 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.