Were Hedge Funds Right About Selling Sibanye Stillwater Limited (SBSW)?
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 Melvin Capital's recent GameStop 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 Sibanye Stillwater Limited (NYSE:SBSW).
Is Sibanye Stillwater Limited (NYSE:SBSW) the right pick for your portfolio? Hedge funds were in a pessimistic mood. The number of long hedge fund positions shrunk by 1 in recent months. Sibanye Stillwater Limited (NYSE:SBSW) was in 16 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 22. Our calculations also showed that SBSW isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Eric Sprott of Sprott Asset Management
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Do Hedge Funds Think SBSW Is A Good Stock To Buy Now?
At first quarter's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in SBSW a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Cliff Asness's AQR Capital Management has the most valuable position in Sibanye Stillwater Limited (NYSE:SBSW), worth close to $93.6 million, corresponding to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Sprott Asset Management, managed by Eric Sprott, which holds a $60.2 million position; the fund has 3.6% of its 13F portfolio invested in the stock. Remaining peers that hold long positions contain Robert Bishop's Impala Asset Management, Todd J. Kantor's Encompass Capital Advisors and Len Kipp and Xavier Majic's Maple Rock Capital. In terms of the portfolio weights assigned to each position Sprott Asset Management allocated the biggest weight to Sibanye Stillwater Limited (NYSE:SBSW), around 3.61% of its 13F portfolio. Maple Rock Capital is also relatively very bullish on the stock, earmarking 3.03 percent of its 13F equity portfolio to SBSW.
Judging by the fact that Sibanye Stillwater Limited (NYSE:SBSW) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of hedge funds that elected to cut their full holdings last quarter. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the largest stake of the "upper crust" of funds watched by Insider Monkey, worth close to $40.6 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dropped about $6.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Sibanye Stillwater Limited (NYSE:SBSW) but similarly valued. These stocks are Host Hotels and Resorts Inc (NASDAQ:HST), Fidelity National Financial Inc (NYSE:FNF), Tuya Inc. (NYSE:TUYA), Zai Lab Limited (NASDAQ:ZLAB), DaVita Inc (NYSE:DVA), Autohome Inc (NYSE:ATHM), and Lennox International Inc. (NYSE:LII). This group of stocks' market valuations match SBSW's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HST,25,240687,3 FNF,39,1164238,-1 TUYA,15,231919,15 ZLAB,32,666075,2 DVA,34,4398979,2 ATHM,18,588993,2 LII,25,395757,-2 Average,26.9,1098093,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $1098 million. That figure was $273 million in SBSW's case. Fidelity National Financial Inc (NYSE:FNF) is the most popular stock in this table. On the other hand Tuya Inc. (NYSE:TUYA) is the least popular one with only 15 bullish hedge fund positions. Sibanye Stillwater Limited (NYSE:SBSW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SBSW is 27.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately SBSW wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SBSW investors were disappointed as the stock returned -9.8% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.
