How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Southern Copper Corporation (NYSE:SCCO) and determine whether hedge funds had an edge regarding this stock.
Hedge fund interest in Southern Copper Corporation (NYSE:SCCO) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SCCO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Twilio Inc. (NYSE:TWLO), Cognizant Technology Solutions Corp (NASDAQ:CTSH), and Chunghwa Telecom Co., Ltd (NYSE:CHT) to gather more data points. Our calculations also showed that SCCO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to take a gander at the new hedge fund action encompassing Southern Copper Corporation (NYSE:SCCO).
How are hedge funds trading Southern Copper Corporation (NYSE:SCCO)?
Heading into the third quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SCCO over the last 20 quarters. 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 Insider Monkey's hedge fund database, Ken Fisher's Fisher Asset Management has the number one position in Southern Copper Corporation (NYSE:SCCO), worth close to $178 million, comprising 0.2% of its total 13F portfolio. The second most bullish fund manager is Hosking Partners, led by Jeremy Hosking, holding a $10.1 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining peers that hold long positions encompass Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Cliff Asness's AQR Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Qtron Investments allocated the biggest weight to Southern Copper Corporation (NYSE:SCCO), around 0.46% of its 13F portfolio. Hosking Partners is also relatively very bullish on the stock, dishing out 0.31 percent of its 13F equity portfolio to SCCO.
Judging by the fact that Southern Copper Corporation (NYSE:SCCO) has experienced a decline in interest from hedge fund managers, it's safe to say that there is a sect of money managers who were dropping their positions entirely in the second quarter. At the top of the heap, Renaissance Technologies sold off the largest investment of the 750 funds watched by Insider Monkey, worth close to $5.3 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund cut about $3.8 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Southern Copper Corporation (NYSE:SCCO) but similarly valued. We will take a look at Twilio Inc. (NYSE:TWLO), Cognizant Technology Solutions Corp (NASDAQ:CTSH), Chunghwa Telecom Co., Ltd (NYSE:CHT), The Allstate Corporation (NYSE:ALL), Match Group, Inc. (NASDAQ:MTCH), Ross Stores, Inc. (NASDAQ:ROST), and Dow Inc. (NYSE:DOW). This group of stocks' market values resemble SCCO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TWLO,66,3724819,14 CTSH,39,2593830,1 CHT,4,157957,-2 ALL,46,1451840,3 MTCH,39,1755544,1 ROST,50,767478,1 DOW,35,452224,-3 Average,39.9,1557670,2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.9 hedge funds with bullish positions and the average amount invested in these stocks was $1558 million. That figure was $222 million in SCCO's case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 4 bullish hedge fund positions. Southern Copper Corporation (NYSE:SCCO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SCCO is 45.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on SCCO as the stock returned 14.8% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.