Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Wheaton Precious Metals Corp. (NYSE:WPM) changed recently.
Wheaton Precious Metals Corp. (NYSE:WPM) has seen an increase in hedge fund sentiment recently. Our calculations also showed that WPM 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.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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_746830" align="aligncenter" width="473"] Matthew Hulsizer of PEAK6 Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to view the fresh hedge fund action surrounding Wheaton Precious Metals Corp. (NYSE:WPM).
What have hedge funds been doing with Wheaton Precious Metals Corp. (NYSE:WPM)?
At Q3's end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 42% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WPM over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Murray Stahl's Horizon Asset Management has the largest position in Wheaton Precious Metals Corp. (NYSE:WPM), worth close to $93.9 million, corresponding to 2.8% of its total 13F portfolio. Sitting at the No. 2 spot is David Iben of Kopernik Global Investors, with a $54.3 million position; 10.3% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish include Renaissance Technologies, Eric Sprott's Sprott Asset Management and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Kopernik Global Investors allocated the biggest weight to Wheaton Precious Metals Corp. (NYSE:WPM), around 10.33% of its portfolio. Sprott Asset Management is also relatively very bullish on the stock, earmarking 7.49 percent of its 13F equity portfolio to WPM.
As aggregate interest increased, key hedge funds were breaking ground themselves. GLG Partners, managed by Noam Gottesman, initiated the most valuable position in Wheaton Precious Metals Corp. (NYSE:WPM). GLG Partners had $19.4 million invested in the company at the end of the quarter. Louis Bacon's Moore Global Investments also made a $7.1 million investment in the stock during the quarter. The other funds with brand new WPM positions are Matthew Hulsizer's PEAK6 Capital Management, Bernard Selz's Selz Capital, and William B. Gray's Orbis Investment Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Wheaton Precious Metals Corp. (NYSE:WPM) but similarly valued. We will take a look at Teledyne Technologies Incorporated (NYSE:TDY), EXACT Sciences Corporation (NASDAQ:EXAS), Wynn Resorts, Limited (NASDAQ:WYNN), and Regency Centers Corp (NASDAQ:REG). This group of stocks' market values resemble WPM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TDY,29,686123,3 EXAS,35,586487,3 WYNN,36,1171401,-3 REG,16,233615,4 Average,29,669407,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $669 million. That figure was $327 million in WPM's case. Wynn Resorts, Limited (NASDAQ:WYNN) is the most popular stock in this table. On the other hand Regency Centers Corp (NASDAQ:REG) is the least popular one with only 16 bullish hedge fund positions. Wheaton Precious Metals Corp. (NYSE:WPM) is not the least popular stock in this group but hedge fund interest is still below average. 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 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. Unfortunately WPM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WPM investors were disappointed as the stock returned 5.3% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.