Were These Hedge Funds Right About Cashing Out Of Barrick Gold Corporation (GOLD)?

Abigail Fisher
·7 min read

In this article we are going to use hedge fund sentiment as a tool and determine whether Barrick Gold Corporation (NYSE:GOLD) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Barrick Gold Corporation (NYSE:GOLD) an excellent investment right now? Investors who are in the know were getting less optimistic. The number of long hedge fund positions were cut by 2 recently. Barrick Gold Corporation (NYSE:GOLD) was in 52 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 54. Our calculations also showed that GOLD isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 54 hedge funds in our database with GOLD holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.

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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Rajiv Jain of GQG Partners
Rajiv Jain of GQG Partners

Rajiv Jain of GQG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let's analyze the fresh hedge fund action encompassing Barrick Gold Corporation (NYSE:GOLD).

Hedge fund activity in Barrick Gold Corporation (NYSE:GOLD)

At Q2's end, a total of 52 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 39 hedge funds with a bullish position in GOLD 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.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the largest position in Barrick Gold Corporation (NYSE:GOLD). Renaissance Technologies has a $722.2 million position in the stock, comprising 0.6% of its 13F portfolio. Sitting at the No. 2 spot is Berkshire Hathaway, led by Warren Buffett, holding a $563.6 million position; 0.3% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions comprise Rajiv Jain's GQG Partners, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and David Greenspan's Slate Path Capital. In terms of the portfolio weights assigned to each position Oldfield Partners allocated the biggest weight to Barrick Gold Corporation (NYSE:GOLD), around 16.63% of its 13F portfolio. Odey Asset Management Group is also relatively very bullish on the stock, setting aside 11.82 percent of its 13F equity portfolio to GOLD.

Judging by the fact that Barrick Gold Corporation (NYSE:GOLD) has witnessed declining sentiment from hedge fund managers, we can see that there lies a certain "tier" of funds that decided to sell off their entire stakes by the end of the second quarter. Intriguingly, Brad Dunkley and Blair Levinsky's Waratah Capital Advisors said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, worth close to $42.1 million in stock. Richard Driehaus's fund, Driehaus Capital, also cut its stock, about $17.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds by the end of the second quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Barrick Gold Corporation (NYSE:GOLD) but similarly valued. We will take a look at Equinor ASA (NYSE:EQNR), Lam Research Corporation (NASDAQ:LRCX), The Progressive Corporation (NYSE:PGR), Square, Inc. (NYSE:SQ), Relx PLC (NYSE:RELX), Analog Devices, Inc. (NASDAQ:ADI), and Westpac Banking Corporation (NYSE:WBK). This group of stocks' market caps match GOLD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQNR,10,237155,-1 LRCX,62,2537918,8 PGR,50,1147531,-1 SQ,66,3487480,10 RELX,6,118963,1 ADI,49,2849471,4 WBK,4,28400,-5 Average,35.3,1486703,2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.3 hedge funds with bullish positions and the average amount invested in these stocks was $1487 million. That figure was $3361 million in GOLD's case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 4 bullish hedge fund positions. Barrick Gold Corporation (NYSE:GOLD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GOLD is 70.6. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately GOLD wasn't nearly as popular as these 10 stocks and hedge funds that were betting on GOLD were disappointed as the stock returned -0.2% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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