We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Freeport-McMoRan Inc. (NYSE:FCX) and determine whether hedge funds skillfully traded this stock.
Is Freeport-McMoRan Inc. (NYSE:FCX) ready to rally soon? The best stock pickers were in a bullish mood. The number of long hedge fund bets moved up by 11 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.
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 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.
Navroz Udwadia - Falcon Edge Capital
Navroz D. Udwadia of Falcon Edge Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we're going to take a peek at the new hedge fund action surrounding Freeport-McMoRan Inc. (NYSE:FCX).
How have hedgies been trading Freeport-McMoRan Inc. (NYSE:FCX)?
At second quarter's end, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in FCX a year ago. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Freeport-McMoRan Inc. (NYSE:FCX), which was worth $458 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $105.5 million worth of shares. 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.
As industrywide interest jumped, key hedge funds have jumped into Freeport-McMoRan Inc. (NYSE:FCX) headfirst. Lansdowne Partners, managed by Alex Snow, initiated 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 following funds were also among the new FCX investors: Kerr Neilson's Platinum Asset Management, Josh Donfeld and David Rogers's Castle Hook Partners, and Joe DiMenna's ZWEIG DIMENNA PARTNERS.
Let's now take a look at hedge fund activity in other stocks similar to Freeport-McMoRan Inc. (NYSE:FCX). 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). All of these stocks' market caps match 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]
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 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on FCX as the stock returned 34.9% since the end of June 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.
