Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Century Aluminum Company (NASDAQ:CENX) and see how the stock is affected by the recent hedge fund activity.
Century Aluminum Company (NASDAQ:CENX) was in 14 hedge funds' portfolios at the end of the second quarter of 2019. CENX investors should pay attention to an increase in enthusiasm from smart money recently. There were 12 hedge funds in our database with CENX positions at the end of the previous quarter. Our calculations also showed that CENX isn't among the 30 most popular stocks among hedge funds (see the video below). 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the latest hedge fund action surrounding Century Aluminum Company (NASDAQ:CENX).
How have hedgies been trading Century Aluminum Company (NASDAQ:CENX)?
Heading into the third quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CENX over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fisher Asset Management was the largest shareholder of Century Aluminum Company (NASDAQ:CENX), with a stake worth $9.8 million reported as of the end of March. Trailing Fisher Asset Management was Citadel Investment Group, which amassed a stake valued at $7.8 million. Royce & Associates, Millennium Management, and Adage Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key money managers have been driving this bullishness. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the largest position in Century Aluminum Company (NASDAQ:CENX). Adage Capital Management had $2.1 million invested in the company at the end of the quarter. Brian C. Freckmann's Lyon Street Capital also made a $0.7 million investment in the stock during the quarter. The following funds were also among the new CENX investors: Benjamin A. Smith's Laurion Capital Management, Michael Gelband's ExodusPoint Capital, and Matthew Hulsizer's PEAK6 Capital Management.
Let's check out hedge fund activity in other stocks similar to Century Aluminum Company (NASDAQ:CENX). These stocks are ORBCOMM Inc (NASDAQ:ORBC), Hoegh LNG Partners LP (NYSE:HMLP), Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), and TPG Pace Holdings Corp. (NYSE:TPGH). This group of stocks' market caps resemble CENX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ORBC,13,87233,-3 HMLP,6,19349,1 AUPH,11,93893,-2 TPGH,19,239546,1 Average,12.25,110005,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $35 million in CENX's case. TPG Pace Holdings Corp. (NYSE:TPGH) is the most popular stock in this table. On the other hand Hoegh LNG Partners LP (NYSE:HMLP) is the least popular one with only 6 bullish hedge fund positions. Century Aluminum Company (NASDAQ:CENX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CENX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CENX were disappointed as the stock returned -3.9% during 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.