We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Pan American Silver Corp. (NASDAQ:PAAS) and determine whether hedge funds skillfully traded this stock.
Pan American Silver Corp. (NASDAQ:PAAS) was in 28 hedge funds' portfolios at the end of June. The all time high for this statistics is 30. PAAS has experienced a decrease in hedge fund interest lately. There were 30 hedge funds in our database with PAAS holdings at the end of March. Our calculations also showed that PAAS isn't among the 30 most popular stocks among hedge funds (click for Q2 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Eric Sprott of Sprott Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let's take a peek at the latest hedge fund action encompassing Pan American Silver Corp. (NASDAQ:PAAS).
Hedge fund activity in Pan American Silver Corp. (NASDAQ:PAAS)
At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PAAS over the last 20 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Pan American Silver Corp. (NASDAQ:PAAS) was held by Renaissance Technologies, which reported holding $158.1 million worth of stock at the end of September. It was followed by Slate Path Capital with a $126.4 million position. Other investors bullish on the company included Sprott Asset Management, Arrowstreet Capital, and Sloane Robinson Investment Management. In terms of the portfolio weights assigned to each position Sloane Robinson Investment Management allocated the biggest weight to Pan American Silver Corp. (NASDAQ:PAAS), around 19.6% of its 13F portfolio. Greywolf Capital Management is also relatively very bullish on the stock, earmarking 12 percent of its 13F equity portfolio to PAAS.
Due to the fact that Pan American Silver Corp. (NASDAQ:PAAS) has faced a decline in interest from the smart money, it's safe to say that there lies a certain "tier" of hedgies that decided to sell off their full holdings by the end of the second quarter. Intriguingly, Matthew Hulsizer's PEAK6 Capital Management cut the largest stake of all the hedgies followed by Insider Monkey, totaling close to $4.4 million in stock, and Brian Ashford-Russell and Tim Woolley's Polar Capital was right behind this move, as the fund cut about $2.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds by the end of the second quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Pan American Silver Corp. (NASDAQ:PAAS) but similarly valued. These stocks are Williams-Sonoma, Inc. (NYSE:WSM), Proofpoint Inc (NASDAQ:PFPT), Gentex Corporation (NASDAQ:GNTX), Pentair plc (NYSE:PNR), Bruker Corporation (NASDAQ:BRKR), TIM Participacoes SA (NYSE:TSU), and Anaplan, Inc. (NYSE:PLAN). This group of stocks' market caps are similar to PAAS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WSM,27,457653,1 PFPT,35,488381,8 GNTX,38,555022,1 PNR,34,528040,5 BRKR,28,188530,7 TSU,15,173822,4 PLAN,49,2181797,-2 Average,32.3,653321,3.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.3 hedge funds with bullish positions and the average amount invested in these stocks was $653 million. That figure was $591 million in PAAS's case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 15 bullish hedge fund positions. Pan American Silver Corp. (NASDAQ:PAAS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PAAS is 50.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately PAAS wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PAAS investors were disappointed as the stock returned 2.9% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.