Were Hedge Funds Right About Souring On ArcelorMittal (MT)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards ArcelorMittal (NYSE:MT) at the end of the first quarter and determine whether the smart money was really smart about this stock.

ArcelorMittal (NYSE:MT) was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. MT investors should be aware of a decrease in hedge fund sentiment recently. There were 17 hedge funds in our database with MT holdings at the end of the previous quarter. Our calculations also showed that MT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Steven Tananbaum - GoldenTree Asset Management

Steven Tananbaum of GoldenTree Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 13 largest cobalt producing countries to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the latest hedge fund action regarding ArcelorMittal (NYSE:MT).

What have hedge funds been doing with ArcelorMittal (NYSE:MT)?

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MT over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MT A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the largest position in ArcelorMittal (NYSE:MT), worth close to $69.7 million, accounting for 0.1% of its total 13F portfolio. Coming in second is Luminus Management, managed by Jonathan Barrett and Paul Segal, which holds a $25.2 million position; the fund has 2.6% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions encompass Ken Griffin’s Citadel Investment Group, Dmitry Balyasny’s Balyasny Asset Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to ArcelorMittal (NYSE:MT), around 2.6% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.2 percent of its 13F equity portfolio to MT.

Since ArcelorMittal (NYSE:MT) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few money managers who sold off their full holdings last quarter. At the top of the heap, Alexander Mitchell’s Scopus Asset Management dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at about $29.8 million in stock, and Steven Tananbaum’s GoldenTree Asset Management was right behind this move, as the fund dropped about $17 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to ArcelorMittal (NYSE:MT). These stocks are Tradeweb Markets Inc. (NASDAQ:TW), Cable One Inc (NYSE:CABO), Carnival Corporation (NYSE:CCL), and Qorvo Inc (NASDAQ:QRVO). All of these stocks’ market caps match MT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TW 30 355406 -6
CABO 23 674859 4
CCL 31 146189 -3
QRVO 39 1165693 -6
Average 30.75 585537 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $586 million. That figure was $123 million in MT’s case. Qorvo Inc (NASDAQ:QRVO) is the most popular stock in this table. On the other hand Cable One Inc (NYSE:CABO) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks ArcelorMittal (NYSE:MT) is even less popular than CABO. Hedge funds dodged a bullet by taking a bearish stance towards MT. 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 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately MT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); MT investors were disappointed as the stock returned 13.9% during the second quarter (through June 25th) 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.

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