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Was The Smart Money Right About HudBay Minerals Inc (HBM)?

Debasis Saha

Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article, we look at what hedge funds think of HudBay Minerals Inc Ord Shs (NYSE:HBM) based on 4+ years of hedge fund filings.

HudBay Minerals Inc Ord Shs (NYSE:HBM) was in 11 hedge funds' portfolios at the end of December. HBM investors should pay attention to a decrease in activity from the world's largest hedge funds in recent months. There were 14 hedge funds in our database with HBM holdings at the end of the previous quarter. Our calculations also showed that HBM 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_26388" align="aligncenter" width="400"] Lee Ainslie of Maverick Capital[/caption]

Lee Ainslie MAVERICK CAPITAL

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let's take a look at the key hedge fund action surrounding HudBay Minerals Inc Ord Shs (NYSE:HBM).

What have hedge funds been doing with HudBay Minerals Inc Ord Shs (NYSE:HBM)?

At the end of the fourth quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HBM over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is HBM A Good Stock To Buy?

The largest stake in HudBay Minerals Inc Ord Shs (NYSE:HBM) was held by GMT Capital, which reported holding $112.8 million worth of stock at the end of September. It was followed by Heathbridge Capital Management with a $28.2 million position. Other investors bullish on the company included Citadel Investment Group, Renaissance Technologies, and Encompass Capital Advisors. In terms of the portfolio weights assigned to each position Heathbridge Capital Management allocated the biggest weight to HudBay Minerals Inc Ord Shs (NYSE:HBM), around 5.75% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, setting aside 4.35 percent of its 13F equity portfolio to HBM.

Due to the fact that HudBay Minerals Inc Ord Shs (NYSE:HBM) has witnessed declining sentiment from the smart money, logic holds that there was a specific group of fund managers that elected to cut their entire stakes by the end of the third quarter. Intriguingly, Lee Ainslie's Maverick Capital dumped the largest position of the 750 funds followed by Insider Monkey, totaling about $0.9 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also sold off its stock, about $0.4 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 3 funds by the end of the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as HudBay Minerals Inc Ord Shs (NYSE:HBM) but similarly valued. These stocks are Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC), Omega Flex, Inc. (NASDAQ:OFLX), Primoris Services Corp (NASDAQ:PRIM), and Arch Coal, Inc. (NYSE:ARCH). This group of stocks' market valuations match HBM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRHC,6,25982,-5 OFLX,6,5185,1 PRIM,11,32912,-3 ARCH,26,197756,-1 Average,12.25,65459,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $211 million in HBM's case. Arch Coal, Inc. (NYSE:ARCH) is the most popular stock in this table. On the other hand Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC) is the least popular one with only 6 bullish hedge fund positions. HudBay Minerals Inc Ord Shs (NYSE:HBM) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately HBM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HBM investors were disappointed as the stock returned -43.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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