Freeport-McMoRan Inc. (FCX): Hedge Funds Caught Wrong Footed

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

We can judge whether Freeport-McMoRan Inc. (NYSE:FCX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Freeport-McMoRan Inc. (NYSE:FCX) has experienced an increase in support from the world’s most elite money managers in recent months. FCX was in 55 hedge funds’ portfolios at the end of December. There were 41 hedge funds in our database with FCX positions at the end of the previous quarter. Our calculations also showed that FCX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 41 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. 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.


Ken Fisher of Fisher Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s take a look at the fresh hedge fund action encompassing Freeport-McMoRan Inc. (NYSE:FCX).

What does smart money think about Freeport-McMoRan Inc. (NYSE:FCX)?

Heading into the first quarter of 2020, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of 34% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FCX over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is FCX A Good Stock To Buy?

More specifically, Fisher Asset Management was the largest shareholder of Freeport-McMoRan Inc. (NYSE:FCX), with a stake worth $493.5 million reported as of the end of September. Trailing Fisher Asset Management was Icahn Capital LP, which amassed a stake valued at $351.2 million. Contrarius Investment Management, Slate Path Capital, and Crake Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Crake Asset Management allocated the biggest weight to Freeport-McMoRan Inc. (NYSE:FCX), around 12.51% of its 13F portfolio. Prince Street Capital Management is also relatively very bullish on the stock, earmarking 6.64 percent of its 13F equity portfolio to FCX.

Consequently, specific money managers have been driving this bullishness. Crake Asset Management, managed by Martin Taylor, initiated the most valuable position in Freeport-McMoRan Inc. (NYSE:FCX). Crake Asset Management had $61.9 million invested in the company at the end of the quarter. Stanley Druckenmiller’s Duquesne Capital also initiated a $60 million position during the quarter. The other funds with new positions in the stock are Robert Bishop’s Impala Asset Management, Josh Donfeld and David Rogers’s Castle Hook Partners, and Richard Driehaus’s Driehaus Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Freeport-McMoRan Inc. (NYSE:FCX) but similarly valued. We will take a look at Ameren Corporation (NYSE:AEE), Western Digital Corporation (NASDAQ:WDC), Zoom Video Communications, Inc. (NASDAQ:ZM), and Incyte Corporation (NASDAQ:INCY). This group of stocks’ market values resemble FCX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AEE 31 1678648 -1
WDC 49 869922 9
ZM 28 858177 -5
INCY 46 3965633 11
Average 38.5 1843095 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.5 hedge funds with bullish positions and the average amount invested in these stocks was $1843 million. That figure was $1663 million in FCX’s case. Western Digital Corporation (NASDAQ:WDC) is the most popular stock in this table. On the other hand Zoom Video Communications, Inc. (NASDAQ:ZM) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Freeport-McMoRan Inc. (NYSE:FCX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately FCX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FCX were disappointed as the stock returned -37% during the first two months of 2020 (through March 9th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.

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