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Hedge Funds Have Never Been This Bullish On Fortuna Silver Mines Inc. (FSM)

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 have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Fortuna Silver Mines Inc. (NYSE:FSM) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is Fortuna Silver Mines Inc. (NYSE:FSM) an attractive investment now? Investors who are in the know are betting on the stock. The number of long hedge fund bets improved by 4 in recent months. Our calculations also showed that FSM isn’t among the 30 most popular stocks among hedge funds. FSM was in 15 hedge funds’ portfolios at the end of December. There were 11 hedge funds in our database with FSM 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 32 percentage points since May 2014 through March 12, 2019 (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.

D. E. Shaw

Let’s check out the new hedge fund action encompassing Fortuna Silver Mines Inc. (NYSE:FSM).

How are hedge funds trading Fortuna Silver Mines Inc. (NYSE:FSM)?

Heading into the first quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 36% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in FSM a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

FSM_may2019

The largest stake in Fortuna Silver Mines Inc. (NYSE:FSM) was held by Renaissance Technologies, which reported holding $19.9 million worth of stock at the end of December. It was followed by Sprott Asset Management with a $7.2 million position. Other investors bullish on the company included Millennium Management, Marshall Wace LLP, and D E Shaw.

Consequently, some big names were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most outsized position in Fortuna Silver Mines Inc. (NYSE:FSM). Marshall Wace LLP had $3.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $1.7 million position during the quarter. The other funds with brand new FSM positions are Noam Gottesman’s GLG Partners, Mark Broach’s Manatuck Hill Partners, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Fortuna Silver Mines Inc. (NYSE:FSM) but similarly valued. We will take a look at Comtech Telecommunications Corp. (NASDAQ:CMTL), Aurinia Pharmaceuticals Inc (NASDAQ:AUPH), ViewRay, Inc. (NASDAQ:VRAY), and Forestar Group Inc. (NYSE:FOR). This group of stocks’ market valuations match FSM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMTL 14 97683 0
AUPH 8 36467 2
VRAY 21 177852 -2
FOR 6 57047 1
Average 12.25 92262 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $42 million in FSM’s case. ViewRay, Inc. (NASDAQ:VRAY) is the most popular stock in this table. On the other hand Forestar Group Inc. (NYSE:FOR) is the least popular one with only 6 bullish hedge fund positions. Fortuna Silver Mines Inc. (NYSE:FSM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately FSM wasn’t nearly as popular as these 15 stock and hedge funds that were betting on FSM were disappointed as the stock returned -16.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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