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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Fortuna Silver Mines Inc. (NYSE:FSM).
Fortuna Silver Mines Inc. (NYSE:FSM) investors should be aware of a decrease in hedge fund sentiment lately. FSM was in 8 hedge funds' portfolios at the end of March. There were 9 hedge funds in our database with FSM positions at the end of the previous quarter. Our calculations also showed that FSM isn't among the 30 most popular stocks among hedge funds (click for Q1 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 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 S&P 500 ETFs by 58 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 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.
[caption id="attachment_844243" align="aligncenter" width="392"] Donald Sussman of Paloma Partners[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's analyze the latest hedge fund action encompassing Fortuna Silver Mines Inc. (NYSE:FSM).
What does smart money think about Fortuna Silver Mines Inc. (NYSE:FSM)?
Heading into the second quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in FSM a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Fortuna Silver Mines Inc. (NYSE:FSM), which was worth $17.1 million at the end of the third quarter. On the second spot was Sprott Asset Management which amassed $9.9 million worth of shares. Millennium Management, Citadel Investment Group, and Arrowstreet Capital 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 Fortuna Silver Mines Inc. (NYSE:FSM), around 0.91% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, setting aside 0.15 percent of its 13F equity portfolio to FSM.
Since Fortuna Silver Mines Inc. (NYSE:FSM) has witnessed a decline in interest from hedge fund managers, we can see that there is a sect of money managers who sold off their positions entirely by the end of the first quarter. It's worth mentioning that John Overdeck and David Siegel's Two Sigma Advisors said goodbye to the largest stake of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $0.4 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund cut about $0.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds by the end of the first quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Fortuna Silver Mines Inc. (NYSE:FSM) but similarly valued. We will take a look at Ruhnn Holding Limited (NASDAQ:RUHN), ADTRAN, Inc. (NASDAQ:ADTN), G-III Apparel Group, Ltd. (NASDAQ:GIII), and Tejon Ranch Company (NYSE:TRC). This group of stocks' market valuations resemble FSM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RUHN,2,228,0 ADTN,16,43668,3 GIII,17,44550,-2 TRC,11,50064,-3 Average,11.5,34628,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $34 million in FSM's case. G-III Apparel Group, Ltd. (NASDAQ:GIII) is the most popular stock in this table. On the other hand Ruhnn Holding Limited (NASDAQ:RUHN) is the least popular one with only 2 bullish hedge fund positions. Fortuna Silver Mines Inc. (NYSE:FSM) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on FSM as the stock returned 89.2% during the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.