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.
Is Sociedad Quimica y Minera (NYSE:SQM) an exceptional investment today? The best stock pickers are in a bullish mood. The number of bullish hedge fund bets inched up by 1 recently. Our calculations also showed that SQM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SQM was in 8 hedge funds' portfolios at the end of September. There were 7 hedge funds in our database with SQM holdings at the end of the previous quarter. 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/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 peek at the fresh hedge fund action encompassing Sociedad Quimica y Minera (NYSE:SQM).
How are hedge funds trading Sociedad Quimica y Minera (NYSE:SQM)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SQM over the last 17 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Sociedad Quimica y Minera (NYSE:SQM), with a stake worth $7.2 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $7.1 million. Citadel Investment Group, Millennium Management, and Luminus 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 CSat Investment Advisory allocated the biggest weight to Sociedad Quimica y Minera (NYSE:SQM), around 0.04% of its 13F portfolio. Luminus Management is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to SQM.
Now, some big names have been driving this bullishness. Renaissance Technologies, initiated the biggest position in Sociedad Quimica y Minera (NYSE:SQM). Renaissance Technologies had $7.2 million invested in the company at the end of the quarter. David E. Shaw's D E Shaw also initiated a $0.5 million position during the quarter.
Let's now review hedge fund activity in other stocks similar to Sociedad Quimica y Minera (NYSE:SQM). We will take a look at Elbit Systems Ltd. (NASDAQ:ESLT), Brookfield Renewable Partners L.P. (NYSE:BEP), Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ), and Mobile TeleSystems OJSC (NYSE:MBT). This group of stocks' market values are closest to SQM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESLT,3,15834,-2 BEP,4,7529,0 JAZZ,25,837365,5 MBT,14,403283,6 Average,11.5,316003,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $316 million. That figure was $20 million in SQM's case. Jazz Pharmaceuticals Public Limited Company (NASDAQ:JAZZ) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 3 bullish hedge fund positions. Sociedad Quimica y Minera (NYSE:SQM) 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 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. Unfortunately SQM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SQM investors were disappointed as the stock returned -14.2% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.