Is ArcelorMittal (NYSE:MT) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to find the latest market-moving information.
Is ArcelorMittal (NYSE:MT) a buy here? Hedge funds are getting less bullish. The number of bullish hedge fund positions went down by 2 lately. Our calculations also showed that MT isn’t among the 30 most popular stocks among hedge funds. MT was in 14 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with MT holdings at the end of the previous quarter.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We’re going to take a look at the latest hedge fund action encompassing ArcelorMittal (NYSE:MT).
How have hedgies been trading ArcelorMittal (NYSE:MT)?
At Q3’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the second quarter of 2018. On the other hand, there were a total of 20 hedge funds with a bullish position in MT at the beginning of this year. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Scopus Asset Management was the largest shareholder of ArcelorMittal (NYSE:MT), with a stake worth $46.3 million reported as of the end of September. Trailing Scopus Asset Management was Citadel Investment Group, which amassed a stake valued at $40.4 million. Renaissance Technologies, Arrowstreet Capital, and Scopus Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that ArcelorMittal (NYSE:MT) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of money managers who sold off their positions entirely by the end of the third quarter. Interestingly, Robert Polak’s Anchor Bolt Capital cut the biggest position of all the hedgies tracked by Insider Monkey, comprising close to $16.8 million in stock. Christopher A. Winham’s fund, Tide Point Capital, also dumped its stock, about $10.6 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to ArcelorMittal (NYSE:MT). These stocks are Nokia Corporation (NYSE:NOK), Sempra Energy (NYSE:SRE), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), and SunTrust Banks, Inc. (NYSE:STI). This group of stocks’ market valuations are closest to MT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NOK | 19 | 520867 | 5 |
| SRE | 33 | 2912686 | 11 |
| ALXN | 37 | 2808171 | -6 |
| STI | 22 | 319050 | -3 |
| Average | 27.75 | 1640194 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1.64 billion. That figure was $180 million in MT’s case. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is the most popular stock in this table. On the other hand Nokia Corporation (NYSE:NOK) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks ArcelorMittal (NYSE:MT) is even less popular than NOK. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
