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Vale SA (VALE): Were Hedge Funds Right About This Stock?

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. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Vale SA (NYSE:VALE).

Vale SA (NYSE:VALE) shareholders have witnessed a decrease in enthusiasm from smart money lately. 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 at the end of this article for Q3 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Heebner of Capital Growth Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we’re going to take a glance at the latest hedge fund action surrounding Vale SA (NYSE:VALE).

How have hedgies been trading Vale SA (NYSE:VALE)?

At Q4’s end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VALE over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Vale SA (NYSE:VALE) was held by Orbis Investment Management, which reported holding $440.6 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $373.5 million position. Other investors bullish on the company included Renaissance Technologies, GQG Partners, and 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, designating 3.08 percent of its 13F equity portfolio to VALE.

Since Vale SA (NYSE:VALE) has faced bearish sentiment from hedge fund managers, it’s easy to see that there exists a select few hedge funds that decided to sell off their positions entirely in the third quarter. At the top of the heap, Louis Bacon’s Moore Global Investments said goodbye to the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $19 million in stock, and Todd J. Kantor’s Encompass Capital Advisors was right behind this move, as the fund dumped about $8.1 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 3 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Vale SA (NYSE:VALE) but similarly valued. We will take a look at The Blackstone Group Inc. (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 valuations are closest to VALE’s market valuation.

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 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately VALE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); VALE investors were disappointed as the stock returned -39.5% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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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