We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Steel Dynamics, Inc. (NASDAQ:STLD) in this article.
Steel Dynamics, Inc. (NASDAQ:STLD) was in 35 hedge funds' portfolios at the end of the fourth quarter of 2019. STLD investors should be aware of an increase in hedge fund interest of late. 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 (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_27676" align="aligncenter" width="400"] Israel Englander of Millennium Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's take a look at the new hedge fund action regarding Steel Dynamics, Inc. (NASDAQ:STLD).
What does smart money think about Steel Dynamics, Inc. (NASDAQ:STLD)?
Heading into the first quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in STLD a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, D E Shaw was the largest shareholder of Steel Dynamics, Inc. (NASDAQ:STLD), with a stake worth $162.4 million reported as of the end of September. Trailing D E Shaw was AQR Capital Management, which amassed a stake valued at $101.8 million. Renaissance Technologies, Scopus Asset 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 Scopus Asset Management allocated the biggest weight to Steel Dynamics, Inc. (NASDAQ:STLD), around 0.94% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, setting aside 0.63 percent of its 13F equity portfolio to STLD.
Now, specific money managers were leading the bulls' herd. Scopus Asset Management, managed by Alexander Mitchell, assembled the most outsized position in Steel Dynamics, Inc. (NASDAQ:STLD). Scopus Asset Management had $28.9 million invested in the company at the end of the quarter. Jinghua Yan's TwinBeech Capital also initiated a $1.2 million position during the quarter. The other funds with new positions in the stock are Robert Vincent McHugh's Jade Capital Advisors, Mike Vranos's Ellington, and Thomas Bailard's Bailard Inc.
Let's go over hedge fund activity in other stocks similar to Steel Dynamics, Inc. (NASDAQ:STLD). We will take a look at 10x Genomics, Inc. (NASDAQ:TXG), Donaldson Company, Inc. (NYSE:DCI), Woori Financial Group Inc. (NYSE:WF), and Nielsen Holdings plc (NYSE:NLSN). This group of stocks' market caps are similar to STLD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TXG,12,172329,-7 DCI,21,175314,-3 WF,3,3750,0 NLSN,29,1163597,-5 Average,16.25,378748,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $379 million. That figure was $506 million in STLD's case. Nielsen Holdings plc (NYSE:NLSN) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Steel Dynamics, Inc. (NASDAQ:STLD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately STLD wasn't nearly as popular as these 20 stocks and hedge funds that were betting on STLD were disappointed as the stock returned -47.5% during the first two and a half months of 2020 (through March 16th) 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.