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Were Hedge Funds Right About Ferroglobe PLC (GSM)?

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In this article we are going to use hedge fund sentiment as a tool and determine whether Ferroglobe PLC (NASDAQ:GSM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Ferroglobe PLC (NASDAQ:GSM) a great stock to buy now? Money managers were turning bullish. The number of bullish hedge fund positions rose by 2 in recent months. Ferroglobe PLC (NASDAQ:GSM) was in 16 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 23. Our calculations also showed that GSM isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 14 hedge funds in our database with GSM holdings at the end of December.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Robert Atchinson of Adage Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind we're going to go over the new hedge fund action regarding Ferroglobe PLC (NASDAQ:GSM).

Do Hedge Funds Think GSM Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the fourth quarter of 2020. On the other hand, there were a total of 11 hedge funds with a bullish position in GSM a year ago. With hedgies' capital changing hands, there exists a few key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Is GSM A Good Stock To Buy?
Is GSM A Good Stock To Buy?

The largest stake in Ferroglobe PLC (NASDAQ:GSM) was held by Hosking Partners, which reported holding $16.9 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $13.4 million position. Other investors bullish on the company included Royce & Associates, Adage Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Halcyon Asset Management allocated the biggest weight to Ferroglobe PLC (NASDAQ:GSM), around 1.46% of its 13F portfolio. Ardsley Partners is also relatively very bullish on the stock, designating 0.47 percent of its 13F equity portfolio to GSM.

Now, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, initiated the largest position in Ferroglobe PLC (NASDAQ:GSM). Millennium Management had $10.8 million invested in the company at the end of the quarter. John Bader's Halcyon Asset Management also made a $7.9 million investment in the stock during the quarter. The other funds with brand new GSM positions are Jonathan Barrett and Paul Segal's Luminus Management, Dmitry Balyasny's Balyasny Asset Management, and Jonathan Soros's JS Capital.

Let's check out hedge fund activity in other stocks similar to Ferroglobe PLC (NASDAQ:GSM). We will take a look at Fossil Group Inc (NASDAQ:FOSL), Napco Security Technologies Inc (NASDAQ:NSSC), MeiraGTx Holdings plc (NASDAQ:MGTX), Arch Resources, Inc. (NYSE:ARCH), FutureFuel Corp. (NYSE:FF), Sify Technologies Limited (NASDAQ:SIFY), and Carriage Services, Inc. (NYSE:CSV). This group of stocks' market values are similar to GSM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FOSL,16,99756,0 NSSC,4,6359,-2 MGTX,13,227177,-3 ARCH,25,162566,1 FF,9,60745,-1 SIFY,5,3728,1 CSV,11,65276,-4 Average,11.9,89372,-1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.9 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $93 million in GSM's case. Arch Resources, Inc. (NYSE:ARCH) is the most popular stock in this table. On the other hand Napco Security Technologies Inc (NASDAQ:NSSC) is the least popular one with only 4 bullish hedge fund positions. Ferroglobe PLC (NASDAQ:GSM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GSM is 56.4. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and still beat the market by 10.1 percentage points. Hedge funds were also right about betting on GSM as the stock returned 45% since the end of Q1 (through 7/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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