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Hedge Funds Started Dumping Vale SA (VALE) Even Before Coronavirus

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Vale SA (NYSE:VALE).

Vale SA (NYSE:VALE) was in 26 hedge funds’ portfolios at the end of December. VALE has seen a decrease in hedge fund interest of late. There were 29 hedge funds in our database with VALE positions at the end of the previous quarter. Our calculations also showed that VALE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are tons of methods stock market investors can use to size up publicly traded companies. Two of the most under-the-radar methods are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the elite money managers can outclass the market by a very impressive amount (see the details here).

Ken Heebner of Capital Growth Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to take a peek at the fresh hedge fund action surrounding Vale SA (NYSE:VALE).

What does smart money think about Vale SA (NYSE:VALE)?

At Q4’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in VALE over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, William B. Gray’s Orbis Investment Management has the biggest position in Vale SA (NYSE:VALE), worth close to $440.6 million, corresponding to 3.1% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Fisher of Fisher Asset Management, with a $373.5 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of Renaissance Technologies, Rajiv Jain’s GQG Partners and Jon Bauer’s Contrarian Capital. In terms of the portfolio weights assigned to each position Contrarian Capital allocated the biggest weight to Vale SA (NYSE:VALE), around 15.71% of its 13F portfolio. Orbis Investment Management is also relatively very bullish on the stock, setting aside 3.08 percent of its 13F equity portfolio to VALE.

Judging by the fact that Vale SA (NYSE:VALE) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of money managers that elected to cut their full holdings in the third quarter. Interestingly, Louis Bacon’s Moore Global Investments cut the biggest stake of all the hedgies tracked by Insider Monkey, valued at about $19 million in stock. Todd J. Kantor’s fund, Encompass Capital Advisors, also cut its stock, about $8.1 million worth. These transactions are important to note, as total hedge fund interest fell by 3 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Vale SA (NYSE:VALE). These stocks are The Blackstone Group L.P. (NYSE:BX), T-Mobile US, Inc. (NASDAQ:TMUS), The Southern Company (NYSE:SO), and S&P Global Inc. (NYSE:SPGI). This group of stocks’ market values match VALE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BX 47 1192894 5
TMUS 61 1396533 -3
SO 30 866429 -3
SPGI 76 3764961 1
Average 53.5 1805204 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 53.5 hedge funds with bullish positions and the average amount invested in these stocks was $1805 million. That figure was $1762 million in VALE’s case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand The Southern Company (NYSE:SO) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Vale SA (NYSE:VALE) is even less popular than SO. Hedge funds dodged a bullet by taking a bearish stance towards VALE. 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 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately VALE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VALE investors were disappointed as the stock returned -35.6% 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 Q1.

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

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