The basic materials sector includes base materials like steel, iron, aluminum, copper, gold, oil and the like. Though not all commodity-related stocks (i.e. gold stocks) are classified in this sector. As an investment, these companies tend to offer modest dividends and growth is moderate but success is dependent on them actually finding the materials for which they explore, so there is some risk as well.
Amongst hedge fund managers, these stocks figure prominently because when consumer demand is up they can outperform their respective commodities. For instance, David Einhorn announced in late October, “With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk-adjusted returns even if gold does not advance further.” Einhorn explained, “Since we believe gold will continue to rise, we expect gold stocks to do even better.” In turn, during the third quarter, he cut his gold commodity holdings and put those funds into investments like Market Vectors Gold Miners ETF (GDX).
Here is a list of basic materials stocks that hedge managers are crazy about. Investors can use this as a starting point for their own research.
Newmont Mining Corp. (NEM): NEM was a favorite pick for George Soros’ Soros Fund Management, Jean-Marie Eveilard’s First Eagle Investment and David Dreman’s Dreman Value Management amongst others. Of the 300+ hedge funds we track, 47 had positions in NEM at the end of the third quarter, compared with just 41 at the end of the second quarter. Total hedge fund investment in the company also increased, from $1.24 billion to $1.48 billion.
FreeportMcMoRan Copper & Gold (FCX): FCX also made the top of several hedge fund managers’ lists in the third quarter. Ken Fisher’s Fisher Asset Management, Ray Dalio’s Bridgewater Associates and Joel Greenblatt’s Gotham Asset Management each had significant positions in FCX at the end of the third quarter and they weren’t alone. A total of 42 hedge funds were invested in FCX at the end of the third quarter, for a total weight of $1.26 billion. Neither the number nor the volume is shabby but it is a marked decrease from the second quarter, when 53 funds were invested in FCX at a collective value of $1.91 billion.
International Paper Co. (IP): IP had slightly less interest – of the funds we track, just 27 had positions in the company at the end of the third quarter – but it still attracted big names like Joel Greenblatt’s Gotham Asset Management, David Tepper’s Appaloosa Management and Ray Dalio’s Bridgewater Associates. Collectively, the 27 funds had $375.58 invested in the company at the end of September, compared with $580.41 million at the end of the second quarter, spread across 28 funds.
Alcoa Inc. (AA): AA was a pick for 25 of the hedge funds we track, including Ray Dalio’s Bridgewater Associates. Collectively, these funds had $543.41 million invested in the company at the end of the third quarter. While the total value of hedge fund investment in AA was less than it was at the end of second quarter ($795.26 million), the number of hedge funds invested in the company did increase, from 24 at the end of June.
Consol Energy Inc. (CNX): The company was a feature in 31 hedge funds in the third quarter, up from 27 in the second quarter. However, the volume of hedge fund investment decreased between quarters from $836.78 million at the end of June to $771.29 million at the end of September. Bill Miller’s Legg Mason Capital Management and Steve Cohen’s SAC Capital Advisors each had positions in the company.
SPDR Gold Trust (GLD): Of the 300+ hedge funds we track, 55 had positions in GLD at the end of the third quarter, compared with 53 at the end of the second quarter. However, while the number of hedge funds invested in GLD increased, the volume of that investment decreased, from $9.32 billion to $9.10 billion.
BP Plc (BP): Hedge fund investments in BP increased across the board during the third quarter, moving from 46 hedge funds with a stake in the company at the end of the second quarter to 53 hedge funds invested in the company at the end of the third quarter. The volume of hedge fund investment also increased, moving from $2.64 billion at the end of June to $2.85 at the end of September.
Anadarko Petroleum Corp. (APC): The total number of hedge funds invested in APC stood at 48 at the end of the third quarter, down from 50 at the end of the second quarter. The volume of hedge fund investment in the company also decreased. Hedge funds collectively owned $4.65 billion in the company at the end of June. In comparison, hedge fund investment had a volume of just $3.78 billion. John Paulson had nearly $900 million in APC at the end of September (see John Paulson’s portfolio).