We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Harmony Gold Mining Co. (NYSE:HMY) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Harmony Gold Mining Co. (NYSE:HMY) has experienced an increase in hedge fund interest lately. HMY was in 12 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 10 hedge funds in our database with HMY holdings at the end of the previous quarter. Our calculations also showed that HMY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the key hedge fund action regarding Harmony Gold Mining Co. (NYSE:HMY).
How are hedge funds trading Harmony Gold Mining Co. (NYSE:HMY)?
At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HMY over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Harmony Gold Mining Co. (NYSE:HMY), with a stake worth $48.9 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $17.2 million. AQR Capital Management, Millennium Management, and Two Sigma Advisors 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 Manatuck Hill Partners allocated the biggest weight to Harmony Gold Mining Co. (NYSE:HMY), around 0.38% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, dishing out 0.04 percent of its 13F equity portfolio to HMY.
Now, key money managers have jumped into Harmony Gold Mining Co. (NYSE:HMY) headfirst. BlueCrest Capital Mgmt., managed by Michael Platt and William Reeves, created the most outsized position in Harmony Gold Mining Co. (NYSE:HMY). BlueCrest Capital Mgmt. had $0.4 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $0.2 million position during the quarter. The only other fund with a brand new HMY position is Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s also examine hedge fund activity in other stocks similar to Harmony Gold Mining Co. (NYSE:HMY). These stocks are United States Steel Corporation (NYSE:X), Capitol Federal Financial, Inc. (NASDAQ:CFFN), Pacific Premier Bancorp, Inc. (NASDAQ:PPBI), and Knowles Corp (NYSE:KN). This group of stocks’ market values match HMY’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $169 million. That figure was $79 million in HMY’s case. Knowles Corp (NYSE:KN) is the most popular stock in this table. On the other hand Pacific Premier Bancorp, Inc. (NASDAQ:PPBI) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Harmony Gold Mining Co. (NYSE:HMY) is even less popular than PPBI. Hedge funds dodged a bullet by taking a bearish stance towards HMY. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately HMY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HMY investors were disappointed as the stock returned -33.3% during the same time period 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 so far in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.