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Hedge Funds Were Selling AngloGold Ashanti Limited (AU) Before The 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 (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards AngloGold Ashanti Limited (NYSE:AU).

Is AngloGold Ashanti Limited (NYSE:AU) worth your attention right now? Money managers are taking a bearish view. The number of bullish hedge fund bets dropped by 2 in recent months. Our calculations also showed that AU 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). AU was in 17 hedge funds’ portfolios at the end of December. There were 19 hedge funds in our database with AU holdings at the end of the previous quarter.

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.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Howard Marks of Oaktree Capital Management

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 we’re going to analyze the latest hedge fund action encompassing AngloGold Ashanti Limited (NYSE:AU).

How are hedge funds trading AngloGold Ashanti Limited (NYSE:AU)?

At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in AU a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Paulson & Co held the most valuable stake in AngloGold Ashanti Limited (NYSE:AU), which was worth $285.6 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $57.3 million worth of shares. Oaktree Capital Management, AQR Capital Management, and Renaissance Technologies 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 Paulson & Co allocated the biggest weight to AngloGold Ashanti Limited (NYSE:AU), around 6.16% of its 13F portfolio. Oaktree Capital Management is also relatively very bullish on the stock, earmarking 1 percent of its 13F equity portfolio to AU.

Because AngloGold Ashanti Limited (NYSE:AU) has witnessed falling interest from hedge fund managers, logic holds that there lies a certain “tier” of money managers who were dropping their entire stakes by the end of the third quarter. At the top of the heap, Noam Gottesman’s GLG Partners sold off the largest position of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $13.8 million in stock. Ernest Chow and Jonathan Howe’s fund, Sensato Capital Management, also cut its stock, about $4 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as AngloGold Ashanti Limited (NYSE:AU) but similarly valued. These stocks are Caesars Entertainment Corp (NASDAQ:CZR), Omega Healthcare Investors Inc (NYSE:OHI), TIM Participacoes SA (NYSE:TSU), and Gaming and Leisure Properties Inc (NASDAQ:GLPI). This group of stocks’ market caps are closest to AU’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CZR 46 4006799 0
OHI 18 147489 0
TSU 11 351539 -3
GLPI 29 851239 -6
Average 26 1339267 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $1339 million. That figure was $542 million in AU’s case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 11 bullish hedge fund positions. AngloGold Ashanti Limited (NYSE:AU) is not the least popular stock in this group but hedge fund interest is still below average. 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on AU as the stock returned -21.3% during the same time period and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
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.

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