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Why Carl Icahn And Other Hedge Fund Titans Are Bullish On This Mining Company

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Freeport-McMoRan Inc (NYSE:FCX)‘s stock opened 1% higher today following news of Carl Icahn‘s increased interest in the mining and energy company. According to a newly-amended filing with the Securities and Exchange Commission, Icahn Capital may be deemed to own exactly 100 million shares of Freeport-McMoRan, or 8.8% of the company’s common stock. Just 7.59 million of those shares were purchased by affiliated funds, while the remaining are shares underlying forward contracts. Since his initial filing in late August, Icahn has added exactly 12 million shares underlying forward contracts to his holding.

Carl Icahn - Icahn Capital Lp

His ruthless approach to activism has earned Carl Icahn the title of ‘corporate raider’, especially following his hostile takeover of Trans World Airlines in 1985. Paypal Holdings Inc (NASDAQ:PYPL)’s spin-off from eBay Inc (NASDAQ:EBAY), as well as a killer trade with Netflix, Inc. (NASDAQ:NFLX) that made Icahn a profit of more than $800 million in less than a year, are among his major recent successes. His affinity for Apple Inc. (NASDAQ:AAPL) is well known in the investment world, with the tech giant continuing to be his biggest bet: 52.7 million shares worth some $6.61 billion at the end of the second quarter. Icahn Capital is also heavily invested in eBay still, holding 46.2 million shares, as well as in Hologic, Inc. (NASDAQ:HOLX), a producer of medical equipment in which he owns 34.1 million shares.

Carl Icahn
Carl Icahn
Icahn Capital LP

Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last 36 months and outperformed the S&P 500 Index by 60 percentage points (see the details here).

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