Should You Follow Hedge Funds Out Of ArcelorMittal SA (ADR) (MT)?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility and underperformance. The time period between the end of June 2015 and the end of June 2016 was one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have been underperforming the large-cap indices. However, things have dramatically changed over the last 5 months. Small-cap stocks reversed their misfortune and beat the large cap indices by almost 11 percentage points since the end of June. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of ArcelorMittal SA (ADR) (NYSE:MT).

Is ArcelorMittal SA (ADR) (NYSE:MT) a marvelous stock to buy now? Investors who are in the know are taking a pessimistic view. The number of long hedge fund positions decreased by 6 recently. At the end of this article we will also compare MT to other stocks including MPLX LP (NYSE:MPLX), KLA-Tencor Corporation (NASDAQ:KLAC), and Waters Corporation (NYSE:WAT) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What does the smart money think about ArcelorMittal SA (ADR) (NYSE:MT)?

At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 24% drop from the second quarter of 2016. Sentiment shifted swiftly, after a large spike in hedge fund ownership in the first-half of this year. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jim Simons’ Renaissance Technologies has the number one position in ArcelorMittal SA (ADR) (NYSE:MT), worth close to $42.1 million. On Renaissance Technologies’ heels is NWI Management, led by Hari Hariharan, holding a $35.8 million position; 3.8% of its 13F portfolio is allocated to the company. Some other peers that hold long positions comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Christopher A. Winham’s Tide Point Capital, and D E Shaw.

Judging by the fact that ArcelorMittal SA (ADR) (NYSE:MT) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds that elected to cut their positions entirely by the end of the third quarter. Intriguingly, Christopher A. Winham’s Tide Point Capital sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, worth close to $16.3 million in call options (as mentioned, Tide Point did retain its long position). Phill Gross and Robert Atchinson’s fund, Adage Capital Management, also cut its stock, about $9.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as ArcelorMittal SA (ADR) (NYSE:MT) but similarly valued. We will take a look at MPLX LP (NYSE:MPLX), KLA-Tencor Corporation (NASDAQ:KLAC), Waters Corporation (NYSE:WAT), and Coach, Inc. (NYSE:COH). This group of stocks’ market caps match MT’s market cap.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $520 million. That figure was $227 million in MT’s case. KLA-Tencor Corporation (NASDAQ:KLAC) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 14 bullish hedge fund positions. ArcelorMittal SA (ADR) (NYSE:MT) 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. In this regard KLAC might be a better candidate to consider a long position in.

Disclosure: None