Hedge Funds Are Coming Back To Yamana Gold Inc. (AUY)

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 Yamana Gold Inc. (NYSE:AUY) and determine whether hedge funds had an edge regarding this stock.

Is Yamana Gold Inc. (NYSE:AUY) the right pick for your portfolio? Hedge funds were buying. The number of long hedge fund positions increased by 4 in recent months. Yamana Gold Inc. (NYSE:AUY) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 24. Our calculations also showed that AUY isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s review the fresh hedge fund action regarding Yamana Gold Inc. (NYSE:AUY).

What does smart money think about Yamana Gold Inc. (NYSE:AUY)?

Heading into the third quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in AUY a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Yamana Gold Inc. (NYSE:AUY) was held by Renaissance Technologies, which reported holding $229 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $81 million position. Other investors bullish on the company included Two Sigma Advisors, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Sprott Asset Management allocated the biggest weight to Yamana Gold Inc. (NYSE:AUY), around 0.38% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.2 percent of its 13F equity portfolio to AUY.

With a general bullishness amongst the heavyweights, some big names have jumped into Yamana Gold Inc. (NYSE:AUY) headfirst. GLG Partners, managed by Noam Gottesman, initiated the largest position in Yamana Gold Inc. (NYSE:AUY). GLG Partners had $4.2 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Minhua Zhang’s Weld Capital Management, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Yamana Gold Inc. (NYSE:AUY) but similarly valued. We will take a look at Vedanta Ltd (NYSE:VEDL), Hess Midstream LP (NYSE:HESM), Tech Data Corp (NASDAQ:TECD), IAA, Inc. (NYSE:IAA), BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ), Acceleron Pharma Inc (NASDAQ:XLRN), and East West Bancorp, Inc. (NASDAQ:EWBC). This group of stocks’ market values are similar to AUY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VEDL 9 46209 -2
HESM 6 11545 1
TECD 17 307359 -22
IAA 43 1326469 4
BJ 31 246030 5
XLRN 48 803006 10
EWBC 23 224008 -2
Average 25.3 423518 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $424 million. That figure was $407 million in AUY’s case. Acceleron Pharma Inc (NASDAQ:XLRN) is the most popular stock in this table. On the other hand Hess Midstream LP (NYSE:HESM) is the least popular one with only 6 bullish hedge fund positions. Yamana Gold Inc. (NYSE:AUY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AUY is 45.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately AUY wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AUY investors were disappointed as the stock returned 4.4% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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