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2019 Review: Top Hedge Fund Stocks vs. Agnico Eagle Mines Limited (AEM)

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Agnico Eagle Mines Limited (NYSE:AEM).

Agnico Eagle Mines Limited (NYSE:AEM) shareholders have witnessed an increase in hedge fund sentiment recently. AEM was in 30 hedge funds’ portfolios at the end of the third quarter of 2019. There were 26 hedge funds in our database with AEM positions at the end of the previous quarter. Our calculations also showed that AEM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

DUQUESNE CAPITAL

Stanley Druckenmiller of Duquesne Capital

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to check out the key hedge fund action regarding Agnico Eagle Mines Limited (NYSE:AEM).

What have hedge funds been doing with Agnico Eagle Mines Limited (NYSE:AEM)?

At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in AEM over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies has the number one position in Agnico Eagle Mines Limited (NYSE:AEM), worth close to $134.8 million, comprising 0.1% of its total 13F portfolio. The second largest stake is held by Paulson & Co, led by John Paulson, holding a $32.6 million position; 0.7% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions include Ken Griffin’s Citadel Investment Group, Stanley Druckenmiller’s Duquesne Capital and Robert B. Gillam’s McKinley Capital Management. In terms of the portfolio weights assigned to each position Chiron Investment Management allocated the biggest weight to Agnico Eagle Mines Limited (NYSE:AEM), around 2.84% of its 13F portfolio. Claar Advisors is also relatively very bullish on the stock, setting aside 2.58 percent of its 13F equity portfolio to AEM.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Waratah Capital Advisors, managed by Brad Dunkley and Blair Levinsky, established the largest position in Agnico Eagle Mines Limited (NYSE:AEM). Waratah Capital Advisors had $5.4 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $1.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Minhua Zhang’s Weld Capital Management.

Let’s go over hedge fund activity in other stocks similar to Agnico Eagle Mines Limited (NYSE:AEM). We will take a look at Annaly Capital Management, Inc. (NYSE:NLY), Alliant Energy Corporation (NASDAQ:LNT), Sea Limited (NYSE:SE), and Phillips 66 Partners LP (NYSE:PSXP). This group of stocks’ market values are similar to AEM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NLY 15 97109 -6
LNT 21 704846 -5
SE 64 3339840 4
PSXP 4 9647 1
Average 26 1037861 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $1038 million. That figure was $382 million in AEM’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 4 bullish hedge fund positions. Agnico Eagle Mines Limited (NYSE:AEM) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on AEM as the stock returned 49.8% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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