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Hedge Funds Dipping Their Toes Into Vale SA (VALE)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Vale SA (NYSE:VALE) and determine whether the smart money was really smart about this stock.

Is Vale SA (NYSE:VALE) a healthy stock for your portfolio? The smart money was getting more bullish. The number of bullish hedge fund positions went up by 1 recently. Vale SA (NYSE:VALE) was in 29 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. Our calculations also showed that VALE 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 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.

Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to take a look at the new hedge fund action regarding Vale SA (NYSE:VALE).

How are hedge funds trading Vale SA (NYSE:VALE)?

At Q2’s end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in VALE a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Fisher Asset Management was the largest shareholder of Vale SA (NYSE:VALE), with a stake worth $427.7 million reported as of the end of September. Trailing Fisher Asset Management was Orbis Investment Management, which amassed a stake valued at $320 million. Arrowstreet Capital, Citadel Investment Group, and Contrarian Capital 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 Contrarian Capital allocated the biggest weight to Vale SA (NYSE:VALE), around 28.85% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, earmarking 2.64 percent of its 13F equity portfolio to VALE.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the largest position in Vale SA (NYSE:VALE). Adage Capital Management had $30.9 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $25.8 million position during the quarter. The following funds were also among the new VALE investors: Ken Heebner’s Capital Growth Management, Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital, and Louis Bacon’s Moore Global Investments.

Let’s also examine hedge fund activity in other stocks similar to Vale SA (NYSE:VALE). These stocks are The Sherwin-Williams Company (NYSE:SHW), Autodesk, Inc. (NASDAQ:ADSK), Brookfield Asset Management Inc. (NYSE:BAM), Moody’s Corporation (NYSE:MCO), Humana Inc (NYSE:HUM), Northrop Grumman Corporation (NYSE:NOC), and Global Payments Inc (NYSE:GPN). This group of stocks’ market valuations are similar to VALE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHW 53 1830766 -4
ADSK 67 3014972 2
BAM 33 1001293 -4
MCO 61 10770558 11
HUM 73 4697967 3
NOC 47 990004 2
GPN 66 3311740 -1
Average 57.1 3659614 1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 57.1 hedge funds with bullish positions and the average amount invested in these stocks was $3660 million. That figure was $1614 million in VALE’s case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Brookfield Asset Management Inc. (NYSE:BAM) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks Vale SA (NYSE:VALE) is even less popular than BAM. Our overall hedge fund sentiment score for VALE is 25.2. 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. Hedge funds clearly dropped the ball on VALE 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. A small number of hedge funds were also right about betting on VALE as the stock returned 14% during the third quarter (through September 14th) and outperformed the market by an even larger margin.

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