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 take a look at whether Southern Copper Corporation (NYSE:SCCO) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Southern Copper Corporation (NYSE:SCCO) was in 20 hedge funds’ portfolios at the end of the fourth quarter of 2019. SCCO has experienced an increase in activity from the world’s largest hedge funds lately. There were 16 hedge funds in our database with SCCO positions at the end of the previous quarter. Our calculations also showed that SCCO 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).
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 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.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s take a look at the recent hedge fund action encompassing Southern Copper Corporation (NYSE:SCCO).
How have hedgies been trading Southern Copper Corporation (NYSE:SCCO)?
At Q4’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SCCO 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.
More specifically, Fisher Asset Management was the largest shareholder of Southern Copper Corporation (NYSE:SCCO), with a stake worth $154.2 million reported as of the end of September. Trailing Fisher Asset Management was Arrowstreet Capital, which amassed a stake valued at $27.6 million. AQR Capital Management, Hosking Partners, and Millennium 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 Hosking Partners allocated the biggest weight to Southern Copper Corporation (NYSE:SCCO), around 0.29% of its 13F portfolio. HighVista Strategies is also relatively very bullish on the stock, earmarking 0.21 percent of its 13F equity portfolio to SCCO.
Now, some big names have jumped into Southern Copper Corporation (NYSE:SCCO) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Southern Copper Corporation (NYSE:SCCO). Arrowstreet Capital had $27.6 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $0.8 million position during the quarter. The other funds with brand new SCCO positions are Donald Sussman’s Paloma Partners, Peter Muller’s PDT Partners, and Andre F. Perold’s HighVista Strategies.
Let’s check out hedge fund activity in other stocks similar to Southern Copper Corporation (NYSE:SCCO). We will take a look at General Mills, Inc. (NYSE:GIS), Amphenol Corporation (NYSE:APH), TE Connectivity Ltd. (NYSE:TEL), and CRH PLC (NYSE:CRH). This group of stocks’ market values are closest to SCCO’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 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $912 million. That figure was $230 million in SCCO’s case. TE Connectivity Ltd. (NYSE:TEL) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 5 bullish hedge fund positions. Southern Copper Corporation (NYSE:SCCO) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately SCCO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SCCO investors were disappointed as the stock returned -34.5% 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 in Q1.
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.