Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
McEwen Mining Inc (NYSE:MUX) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare MUX to other stocks including International Seaways, Inc. (NYSE:INSW), Crawford & Company (NYSE:CRD), and The Bancorp, Inc. (NASDAQ:TBBK) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
[caption id="attachment_258236" align="alignnone" width="600"] Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's take a gander at the new hedge fund action encompassing McEwen Mining Inc (NYSE:MUX).
What have hedge funds been doing with McEwen Mining Inc (NYSE:MUX)?
At Q3's end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in MUX a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Ken Griffin's Citadel Investment Group has the number one position in McEwen Mining Inc (NYSE:MUX), worth close to $3.1 million, accounting for less than 0.1%% of its total 13F portfolio. Coming in second is David Harding of Winton Capital Management, with a $2.4 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism comprise Dmitry Balyasny's Balyasny Asset Management, Michael Platt and William Reeves's BlueCrest Capital Mgmt. and . In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to McEwen Mining Inc (NYSE:MUX), around 0.03% of its 13F portfolio. BlueCrest Capital Mgmt. is also relatively very bullish on the stock, designating 0.0037 percent of its 13F equity portfolio to MUX.
Due to the fact that McEwen Mining Inc (NYSE:MUX) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there were a few hedge funds that slashed their positions entirely last quarter. Intriguingly, John Thiessen's Vertex One Asset Management sold off the largest stake of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $0.6 million in stock. Murray Stahl's fund, Horizon Asset Management, also sold off its stock, about $0 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to McEwen Mining Inc (NYSE:MUX). We will take a look at International Seaways, Inc. (NYSE:INSW), Crawford & Company (NYSE:CRD), The Bancorp, Inc. (NASDAQ:TBBK), and The First of Long Island Corporation (NASDAQ:FLIC). This group of stocks' market valuations are similar to MUX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INSW,21,158072,6 CRD,14,36590,3 TBBK,18,84515,1 FLIC,10,40054,1 Average,15.75,79808,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $6 million in MUX's case. International Seaways, Inc. (NYSE:INSW) is the most popular stock in this table. On the other hand The First of Long Island Corporation (NASDAQ:FLIC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks McEwen Mining Inc (NYSE:MUX) is even less popular than FLIC. Hedge funds dodged a bullet by taking a bearish stance towards MUX. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MUX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MUX investors were disappointed as the stock returned -27.6% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.