We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Sandstorm Gold Ltd. (NYSE:SAND).
Sandstorm Gold Ltd. (NYSE:SAND) investors should be aware of a decrease in hedge fund interest in recent months. Our calculations also showed that SAND isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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.
[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the latest hedge fund action surrounding Sandstorm Gold Ltd. (NYSE:SAND).
How have hedgies been trading Sandstorm Gold Ltd. (NYSE:SAND)?
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in SAND a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Sprott Asset Management, managed by Eric Sprott, holds the most valuable position in Sandstorm Gold Ltd. (NYSE:SAND). Sprott Asset Management has a $15 million position in the stock, comprising 3.8% of its 13F portfolio. The second largest stake is held by Horizon Asset Management, led by Murray Stahl, holding a $12.9 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and John Overdeck and David Siegel's Two Sigma Advisors. In terms of the portfolio weights assigned to each position Sprott Asset Management allocated the biggest weight to Sandstorm Gold Ltd. (NYSE:SAND), around 3.82% of its 13F portfolio. Signition LP is also relatively very bullish on the stock, designating 1 percent of its 13F equity portfolio to SAND.
Because Sandstorm Gold Ltd. (NYSE:SAND) has witnessed bearish sentiment from the smart money, logic holds that there exists a select few hedgies who were dropping their positions entirely heading into Q4. Intriguingly, Paul Marshall and Ian Wace's Marshall Wace sold off the largest stake of all the hedgies tracked by Insider Monkey, totaling about $4.8 million in stock. Mark Broach's fund, Manatuck Hill Partners, also dumped its stock, about $0.6 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds heading into Q4.
Let's go over hedge fund activity in other stocks similar to Sandstorm Gold Ltd. (NYSE:SAND). These stocks are NetGear, Inc. (NASDAQ:NTGR), Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS), Esperion Therapeutics, Inc. (NASDAQ:ESPR), and Heritage Financial Corporation (NASDAQ:HFWA). This group of stocks' market valuations are similar to SAND's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NTGR,19,23465,8 VLRS,8,111630,1 ESPR,15,148350,-1 HFWA,9,42375,0 Average,12.75,81455,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $66 million in SAND's case. NetGear, Inc. (NASDAQ:NTGR) is the most popular stock in this table. On the other hand Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS) is the least popular one with only 8 bullish hedge fund positions. Sandstorm Gold Ltd. (NYSE:SAND) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on SAND as the stock returned 19.3% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.