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Here is What Hedge Funds Think About Steel Dynamics, Inc. (STLD)

Abigail Fisher

Insider Monkey finished processing more than 700 13F filings made by hedge funds and prominent investors. These filings show these funds' portfolio positions as of September 30th. In this article we are going to take a look at smart money sentiment towards Steel Dynamics, Inc. (NASDAQ:STLD).

Steel Dynamics, Inc. (NASDAQ:STLD) was in 28 hedge funds' portfolios at the end of September. STLD shareholders have witnessed a decrease in hedge fund sentiment lately. There were 29 hedge funds in our database with STLD holdings at the end of the previous quarter. Our calculations also showed that STLD 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 18 percentage points since May 2014 through December 3, 2018 (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.

[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

We're going to take a glance at the fresh hedge fund action surrounding Steel Dynamics, Inc. (NASDAQ:STLD).

How have hedgies been trading Steel Dynamics, Inc. (NASDAQ:STLD)?

At Q3's end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards STLD over the last 13 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

STLD_dec2018

Among these funds, Steadfast Capital Management held the most valuable stake in Steel Dynamics, Inc. (NASDAQ:STLD), which was worth $156.2 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $124 million worth of shares. Moreover, Citadel Investment Group, Millennium Management, and D E Shaw were also bullish on Steel Dynamics, Inc. (NASDAQ:STLD), allocating a large percentage of their portfolios to this stock.

Because Steel Dynamics, Inc. (NASDAQ:STLD) has witnessed declining sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of hedge funds that elected to cut their full holdings heading into Q3. At the top of the heap, Josh Donfeld and David Rogers's Castle Hook Partners sold off the biggest position of all the hedgies tracked by Insider Monkey, valued at an estimated $44.9 million in stock. Lee Ainslie's fund, Maverick Capital, also said goodbye to its stock, about $12.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds heading into Q3.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Steel Dynamics, Inc. (NASDAQ:STLD) but similarly valued. These stocks are Aramark (NYSE:ARMK), Nektar Therapeutics (NASDAQ:NKTR), Atmos Energy Corporation (NYSE:ATO), and Tata Motors Limited (NYSE:TTM). All of these stocks' market caps resemble STLD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARMK,35,1551740,8 NKTR,27,417833,3 ATO,15,168216,-2 TTM,9,120349,-3 Average,21.5,564535,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $565 million. That figure was $571 million in STLD's case. Aramark (NYSE:ARMK) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 9 bullish hedge fund positions. Steel Dynamics, Inc. (NASDAQ:STLD) 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. In this regard ARMK might be a better candidate to consider a long position.

Disclosure: None. This article was originally published at Insider Monkey.

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