Is POSCO (NYSE:PKX) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
POSCO (NYSE:PKX) investors should be aware of a decrease in hedge fund interest lately. PKX was in 11 hedge funds' portfolios at the end of March. There were 15 hedge funds in our database with PKX holdings at the end of the previous quarter. Our calculations also showed that PKX isn't among the 30 most popular stocks among hedge funds.
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 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 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.
We're going to take a look at the recent hedge fund action surrounding POSCO (NYSE:PKX).
Hedge fund activity in POSCO (NYSE:PKX)
At Q1's end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PKX over the last 15 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in POSCO (NYSE:PKX), which was worth $42.7 million at the end of the first quarter. On the second spot was Pzena Investment Management which amassed $8.1 million worth of shares. Moreover, Millennium Management, D E Shaw, and LMR Partners were also bullish on POSCO (NYSE:PKX), allocating a large percentage of their portfolios to this stock.
Judging by the fact that POSCO (NYSE:PKX) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few hedgies that elected to cut their entire stakes heading into Q3. It's worth mentioning that Prem Watsa's Fairfax Financial Holdings dropped the largest stake of all the hedgies watched by Insider Monkey, valued at close to $10.4 million in stock, and David Kowitz and Sheldon Kasowitz's Indus Capital was right behind this move, as the fund dumped about $3.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds heading into Q3.
Let's check out hedge fund activity in other stocks similar to POSCO (NYSE:PKX). We will take a look at IAC/InterActiveCorp (NASDAQ:IAC), Cheniere Energy, Inc. (NYSE:LNG), Shinhan Financial Group Co., Ltd. (NYSE:SHG), and Grifols SA (NASDAQ:GRFS). This group of stocks' market values are closest to PKX's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IAC,51,2017916,1 LNG,53,5187506,7 SHG,4,11258,-3 GRFS,14,267276,0 Average,30.5,1870989,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $1871 million. That figure was $67 million in PKX's case. Cheniere Energy, Inc. (NYSE:LNG) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 4 bullish hedge fund positions. POSCO (NYSE:PKX) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately PKX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PKX investors were disappointed as the stock returned -5.8% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.