Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's analyze whether Vedanta Ltd (NYSE:VEDL) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Vedanta Ltd (NYSE:VEDL) has seen an increase in enthusiasm from smart money recently. Our calculations also showed that VEDL isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In today’s marketplace there are several signals market participants can use to evaluate publicly traded companies. Two of the most underrated signals are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the elite investment managers can trounce the market by a very impressive amount (see the details here).
[caption id="attachment_758477" align="aligncenter" width="400"] Andy Redleaf of Whitebox Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a gander at the new hedge fund action surrounding Vedanta Ltd (NYSE:VEDL).
Hedge fund activity in Vedanta Ltd (NYSE:VEDL)
At the end of the fourth quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in VEDL a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Vedanta Ltd (NYSE:VEDL), with a stake worth $25.7 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $21.5 million. Whitebox Advisors, 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 Whitebox Advisors allocated the biggest weight to Vedanta Ltd (NYSE:VEDL), around 0.32% of its 13F portfolio. Paloma Partners is also relatively very bullish on the stock, designating 0.05 percent of its 13F equity portfolio to VEDL.
As one would reasonably expect, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most valuable position in Vedanta Ltd (NYSE:VEDL). Arrowstreet Capital had $4.1 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also initiated a $3.4 million position during the quarter. The other funds with brand new VEDL positions are Matthew Tewksbury's Stevens Capital Management and Claes Fornell's CSat Investment Advisory.
Let's now take a look at hedge fund activity in other stocks similar to Vedanta Ltd (NYSE:VEDL). These stocks are Reliance Steel & Aluminum Co. (NYSE:RS), Kohl's Corporation (NYSE:KSS), Xerox Corporation (NYSE:XRX), and Ares Capital Corporation (NASDAQ:ARCC). This group of stocks' market caps match VEDL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RS,34,390307,10 KSS,28,405115,-2 XRX,39,1458893,6 ARCC,22,262419,-1 Average,30.75,629184,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $629 million. That figure was $75 million in VEDL's case. Xerox Corporation (NYSE:XRX) is the most popular stock in this table. On the other hand Ares Capital Corporation (NASDAQ:ARCC) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Vedanta Ltd (NYSE:VEDL) is even less popular than ARCC. Hedge funds dodged a bullet by taking a bearish stance towards VEDL. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately VEDL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VEDL investors were disappointed as the stock returned -52% during the same time period 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 most of these stocks already outperformed the market so far in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.