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 (read our latest 10 coronavirus predictions). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was POSCO (NYSE:PKX).
POSCO (NYSE:PKX) was in 10 hedge funds’ portfolios at the end of December. PKX has seen a decrease in activity from the world’s largest hedge funds in recent months. There were 11 hedge funds in our database with PKX positions at the end of the previous quarter. Our calculations also showed that PKX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below 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.
Richard S. Pzena of Pzena Investment 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. With all of this in mind let’s check out the new hedge fund action regarding POSCO (NYSE:PKX).
What does smart money think about POSCO (NYSE:PKX)?
Heading into the first quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the third quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in PKX a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the most valuable position in POSCO (NYSE:PKX), worth close to $44 million, accounting for 0.1% of its total 13F portfolio. Coming in second is Pzena Investment Management, managed by Richard S. Pzena, which holds a $9.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of D. E. Shaw’s D E Shaw, Israel Englander’s Millennium Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Athos Capital allocated the biggest weight to POSCO (NYSE:PKX), around 0.55% of its 13F portfolio. Ovata Capital Management is also relatively very bullish on the stock, earmarking 0.15 percent of its 13F equity portfolio to PKX.
Seeing as POSCO (NYSE:PKX) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few money managers that slashed their full holdings heading into Q4. Intriguingly, Steve Cohen’s Point72 Asset Management cut the biggest position of all the hedgies tracked by Insider Monkey, valued at close to $8.2 million in stock. Francis Chou’s fund, Chou Associates Management, also cut its stock, about $1 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to POSCO (NYSE:PKX). These stocks are Nomura Holdings, Inc. (NYSE:NMR), Invitation Homes Inc. (NYSE:INVH), TransUnion (NYSE:TRU), and KB Financial Group, Inc. (NYSE:KB). This group of stocks’ market valuations are closest to PKX’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NMR | 5 | 26003 | 0 |
| INVH | 33 | 1112180 | 3 |
| TRU | 37 | 931964 | -1 |
| KB | 5 | 47584 | -3 |
| Average | 20 | 529433 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $529 million. That figure was $64 million in PKX’s case. TransUnion (NYSE:TRU) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 5 bullish hedge fund positions. POSCO (NYSE:PKX) 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately PKX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PKX investors were disappointed as the stock returned -40.6% 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 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.
