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Were Hedge Funds Right About Crowding Into Freeport-McMoRan Inc. (FCX)?

Abigail Fisher
·6 min read

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Freeport-McMoRan Inc. (NYSE:FCX).

Freeport-McMoRan Inc. (NYSE:FCX) investors should pay attention to an increase in activity from the world's largest hedge funds lately. Freeport-McMoRan Inc. (NYSE:FCX) was in 53 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 55. Our calculations also showed that FCX 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.

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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Rick Gerson
Rick Gerson

Richard Gerson of Falcon Edge Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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 let's go over the recent hedge fund action surrounding Freeport-McMoRan Inc. (NYSE:FCX).

Hedge fund activity in Freeport-McMoRan Inc. (NYSE:FCX)

At the end of June, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from the first quarter of 2020. By comparison, 33 hedge funds held shares or bullish call options in FCX a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

More specifically, Fisher Asset Management was the largest shareholder of Freeport-McMoRan Inc. (NYSE:FCX), with a stake worth $458 million reported as of the end of September. Trailing Fisher Asset Management was Citadel Investment Group, which amassed a stake valued at $105.5 million. Slate Path Capital, Duquesne Capital, and Adage Capital 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 Prince Street Capital Management allocated the biggest weight to Freeport-McMoRan Inc. (NYSE:FCX), around 6.34% of its 13F portfolio. Slate Path Capital is also relatively very bullish on the stock, earmarking 5.14 percent of its 13F equity portfolio to FCX.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Lansdowne Partners, managed by Suzi Nutton, assembled the biggest position in Freeport-McMoRan Inc. (NYSE:FCX). Lansdowne Partners had $64.6 million invested in the company at the end of the quarter. Richard Gerson and Navroz D. Udwadia's Falcon Edge Capital also made a $22.8 million investment in the stock during the quarter. The other funds with brand new FCX positions are Kerr Neilson's Platinum Asset Management, Josh Donfeld and David Rogers's Castle Hook Partners, and Joe DiMenna's ZWEIG DIMENNA PARTNERS.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Freeport-McMoRan Inc. (NYSE:FCX) but similarly valued. These stocks are W.W. Grainger, Inc. (NYSE:GWW), Occidental Petroleum Corporation (NYSE:OXY), Weyerhaeuser Co. (NYSE:WY), CMS Energy Corporation (NYSE:CMS), West Pharmaceutical Services Inc. (NYSE:WST), Smith & Nephew plc (NYSE:SNN), and China Unicom (Hong Kong) Limited (NYSE:CHU). This group of stocks' market caps resemble FCX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GWW,28,426625,2 OXY,34,1758766,-1 WY,33,400683,-2 CMS,30,500702,2 WST,27,379097,0 SNN,12,90551,3 CHU,8,42706,2 Average,24.6,514161,0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.6 hedge funds with bullish positions and the average amount invested in these stocks was $514 million. That figure was $1222 million in FCX's case. Occidental Petroleum Corporation (NYSE:OXY) is the most popular stock in this table. On the other hand China Unicom (Hong Kong) Limited (NYSE:CHU) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Freeport-McMoRan Inc. (NYSE:FCX) is more popular among hedge funds. Our overall hedge fund sentiment score for FCX is 88.9. 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 returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on FCX as the stock returned 58.7% since the end of June (through 10/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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