Hedge Funds Keep Selling Wheaton Precious Metals Corp. (WPM)

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 Wheaton Precious Metals Corp. (NYSE:WPM) and determine whether hedge funds had an edge regarding this stock.

Wheaton Precious Metals Corp. (NYSE:WPM) has seen a decrease in support from the world’s most elite money managers lately. Wheaton Precious Metals Corp. (NYSE:WPM) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 30. Our calculations also showed that WPM 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.

Eric Sprott Sprott Asset Management

Eric Sprott of Sprott Asset Management

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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. With all of this in mind we’re going to analyze the latest hedge fund action surrounding Wheaton Precious Metals Corp. (NYSE:WPM).

How are hedge funds trading Wheaton Precious Metals Corp. (NYSE:WPM)?

At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards WPM over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the largest position in Wheaton Precious Metals Corp. (NYSE:WPM), worth close to $256.2 million, accounting for 0.5% of its total 13F portfolio. Coming in second is Renaissance Technologies, with a $159.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers with similar optimism contain Murray Stahl’s Horizon Asset Management, Eric Sprott’s Sprott Asset Management and David Iben’s Kopernik Global Investors. In terms of the portfolio weights assigned to each position Moerus Capital Management allocated the biggest weight to Wheaton Precious Metals Corp. (NYSE:WPM), around 7.22% of its 13F portfolio. Kopernik Global Investors is also relatively very bullish on the stock, designating 7.01 percent of its 13F equity portfolio to WPM.

Because Wheaton Precious Metals Corp. (NYSE:WPM) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few funds that slashed their positions entirely by the end of the second quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, worth close to $11.3 million in stock. Louis Bacon’s fund, Moore Global Investments, also sold off its stock, about $6.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 4 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks similar to Wheaton Precious Metals Corp. (NYSE:WPM). These stocks are Corning Incorporated (NYSE:GLW), TD Ameritrade Holding Corp. (NASDAQ:AMTD), Deutsche Bank Aktiengesellschaft (NYSE:DB), Nasdaq, Inc. (NASDAQ:NDAQ), Copart, Inc. (NASDAQ:CPRT), Banco Santander (Brasil) SA (NYSE:BSBR), and Mettler-Toledo International Inc. (NYSE:MTD). This group of stocks’ market valuations resemble WPM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLW 28 147576 -2
AMTD 47 1172699 1
DB 11 1266439 -1
NDAQ 25 153170 -1
CPRT 60 826695 12
BSBR 10 18916 2
MTD 27 584124 -4
Average 29.7 595660 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.7 hedge funds with bullish positions and the average amount invested in these stocks was $596 million. That figure was $768 million in WPM’s case. Copart, Inc. (NASDAQ:CPRT) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (NYSE:BSBR) is the least popular one with only 10 bullish hedge fund positions. Wheaton Precious Metals Corp. (NYSE:WPM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WPM is 33. 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. 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 still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on WPM as the stock returned 11.6% in the third quarter and outperformed the market by an even larger margin.

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