A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by nearly 7 percentage points during the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let's study the hedge fund sentiment to see how those concerns affected their ownership of Seabridge Gold, Inc. (NYSE:SA) during the quarter.
Seabridge Gold, Inc. (NYSE:SA) shareholders have witnessed an increase in enthusiasm from smart money in recent months. Our calculations also showed that SA isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to view the new hedge fund action encompassing Seabridge Gold, Inc. (NYSE:SA).
Hedge fund activity in Seabridge Gold, Inc. (NYSE:SA)
At Q4's end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SA over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Weiss Asset Management held the most valuable stake in Seabridge Gold, Inc. (NYSE:SA), which was worth $19.5 million at the end of the fourth quarter. On the second spot was Paulson & Co which amassed $9.3 million worth of shares. Moreover, Sprott Asset Management, Arbiter Partners Capital Management, and Millennium Management were also bullish on Seabridge Gold, Inc. (NYSE:SA), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, key hedge funds were leading the bulls' herd. PEAK6 Capital Management, managed by Matthew Hulsizer, created the most outsized position in Seabridge Gold, Inc. (NYSE:SA). PEAK6 Capital Management had $0.4 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $0.2 million investment in the stock during the quarter. The only other fund with a brand new SA position is John Overdeck and David Siegel's Two Sigma Advisors.
Let's check out hedge fund activity in other stocks similar to Seabridge Gold, Inc. (NYSE:SA). These stocks are Helix Energy Solutions Group Inc. (NYSE:HLX), QuinStreet Inc (NASDAQ:QNST), The St. Joe Company (NYSE:JOE), and Tutor Perini Corp (NYSE:TPC). This group of stocks' market caps are similar to SA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HLX,18,34360,2 QNST,27,233274,-1 JOE,12,383512,-3 TPC,7,6806,0 Average,16,164488,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $164 million. That figure was $43 million in SA's case. QuinStreet Inc (NASDAQ:QNST) is the most popular stock in this table. On the other hand Tutor Perini Corp (NYSE:TPC) is the least popular one with only 7 bullish hedge fund positions. Seabridge Gold, Inc. (NYSE:SA) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately SA wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); SA investors were disappointed as the stock returned -15.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.