It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Companhia Siderurgica Nacional (NYSE:SID).
Companhia Siderurgica Nacional (NYSE:SID) investors should pay attention to a decrease in hedge fund interest in recent months. SID was in 7 hedge funds' portfolios at the end of September. There were 10 hedge funds in our database with SID positions at the end of the previous quarter. Our calculations also showed that SID 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.
If you'd ask most stock holders, hedge funds are viewed as worthless, outdated financial tools of yesteryear. While there are over 8000 funds in operation today, We look at the leaders of this club, approximately 750 funds. These investment experts handle most of the hedge fund industry's total asset base, and by observing their finest picks, Insider Monkey has found several investment strategies that have historically surpassed Mr. Market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_30621" align="aligncenter" width="600"] Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's take a peek at the recent hedge fund action regarding Companhia Siderurgica Nacional (NYSE:SID).
How have hedgies been trading Companhia Siderurgica Nacional (NYSE:SID)?
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -30% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in SID a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Companhia Siderurgica Nacional (NYSE:SID), with a stake worth $13.1 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $2.5 million. Two Sigma Advisors, AQR Capital Management, and Millennium Management 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 Renaissance Technologies allocated the biggest weight to Companhia Siderurgica Nacional (NYSE:SID), around 0.01% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, setting aside 0.0041 percent of its 13F equity portfolio to SID.
Since Companhia Siderurgica Nacional (NYSE:SID) has experienced falling interest from hedge fund managers, logic holds that there were a few hedgies who sold off their entire stakes by the end of the third quarter. At the top of the heap, Ken Heebner's Capital Growth Management sold off the biggest stake of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $8.6 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also cut its stock, about $0.5 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to Companhia Siderurgica Nacional (NYSE:SID). These stocks are Littelfuse, Inc. (NASDAQ:LFUS), Sabra Health Care REIT Inc (NASDAQ:SBRA), TriNet Group Inc (NYSE:TNET), and PacWest Bancorp (NASDAQ:PACW). This group of stocks' market valuations match SID's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LFUS,18,270623,3 SBRA,10,99601,0 TNET,18,419054,-3 PACW,23,251367,3 Average,17.25,260161,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $18 million in SID's case. PacWest Bancorp (NASDAQ:PACW) is the most popular stock in this table. On the other hand Sabra Health Care REIT Inc (NASDAQ:SBRA) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Companhia Siderurgica Nacional (NYSE:SID) is even less popular than SBRA. Hedge funds dodged a bullet by taking a bearish stance towards SID. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SID wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SID investors were disappointed as the stock returned -6.3% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.