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Were Hedge Funds Right About Flocking Into Alamos Gold Inc (AGI) ?

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. An average long/short hedge fund returned only 5% due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Alamos Gold Inc (NYSE:AGI).

Is Alamos Gold Inc (NYSE:AGI) a buy, sell, or hold? Investors who are in the know are becoming hopeful. The number of long hedge fund positions improved by 1 recently. Our calculations also showed that AGI isn’t among the 30 most popular stocks among hedge funds. AGI was in 11 hedge funds’ portfolios at the end of December. There were 10 hedge funds in our database with AGI positions 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

We’re going to take a gander at the fresh hedge fund action encompassing Alamos Gold Inc (NYSE:AGI).

Hedge fund activity in Alamos Gold Inc (NYSE:AGI)

Heading into the first quarter of 2019, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in AGI a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

AGI_apr2019

More specifically, Sun Valley Gold was the largest shareholder of Alamos Gold Inc (NYSE:AGI), with a stake worth $25.7 million reported as of the end of December. Trailing Sun Valley Gold was Renaissance Technologies, which amassed a stake valued at $19.2 million. Royce & Associates, Arrowstreet Capital, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Alamos Gold Inc (NYSE:AGI). Arrowstreet Capital had $5.3 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $0.4 million position during the quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Alamos Gold Inc (NYSE:AGI) but similarly valued. We will take a look at Adient plc (NYSE:ADNT), Fanhua Inc. (NASDAQ:FANH), Cadence Bancorporation (NYSE:CADE), and Qudian Inc. (NYSE:QD). This group of stocks’ market values match AGI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADNT 27 287226 -2
FANH 9 13664 5
CADE 18 117882 -1
QD 15 14376 9
Average 17.25 108287 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $72 million in AGI’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand Fanhua Inc. (NASDAQ:FANH) is the least popular one with only 9 bullish hedge fund positions. Alamos Gold Inc (NYSE:AGI) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on AGI as the stock returned 28.6% and outperformed the market by an even larger margin.

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

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