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Did Hedge Funds Make The Right Call On AngloGold Ashanti Limited (AU) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding AngloGold Ashanti Limited (NYSE:AU) and determine whether hedge funds had an edge regarding this stock.

AngloGold Ashanti Limited (NYSE:AU) shareholders have witnessed an increase in hedge fund sentiment of late. Our calculations also showed that AU isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 58 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 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.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Howard Marks of Oaktree Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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 let’s take a peek at the recent hedge fund action encompassing AngloGold Ashanti Limited (NYSE:AU).

Hedge fund activity in AngloGold Ashanti Limited (NYSE:AU)

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AU over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Paulson & Co, managed by John Paulson, holds the biggest position in AngloGold Ashanti Limited (NYSE:AU). Paulson & Co has a $188.7 million position in the stock, comprising 7.2% of its 13F portfolio. Coming in second is Renaissance Technologies, which holds a $58.3 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish encompass Eric Sprott’s Sprott Asset Management, Howard Marks’s Oaktree Capital Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Paulson & Co allocated the biggest weight to AngloGold Ashanti Limited (NYSE:AU), around 7.2% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, designating 4.55 percent of its 13F equity portfolio to AU.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Moore Global Investments, managed by Louis Bacon, established the largest position in AngloGold Ashanti Limited (NYSE:AU). Moore Global Investments had $1.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $1.3 million position during the quarter. The other funds with brand new AU positions are Lee Ainslie’s Maverick Capital, Ronald Hua’s Qtron Investments, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as AngloGold Ashanti Limited (NYSE:AU) but similarly valued. These stocks are Luckin Coffee Inc. (NASDAQ:LK), Fidelity National Financial Inc (NYSE:FNF), Cabot Oil & Gas Corporation (NYSE:COG), and Iron Mountain Incorporated (NYSE:IRM). This group of stocks’ market valuations are similar to AU’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LK 36 1056167 3
FNF 43 386182 7
COG 37 469345 3
IRM 19 49061 2
Average 33.75 490189 3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $490 million. That figure was $399 million in AU’s case. Fidelity National Financial Inc (NYSE:FNF) is the most popular stock in this table. On the other hand Iron Mountain Incorporated (NYSE:IRM) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks AngloGold Ashanti Limited (NYSE:AU) is even less popular than IRM. Hedge funds clearly dropped the ball on AU as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on AU as the stock returned 128% since the end of March and outperformed the market by an even larger margin.

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