Metals Miners as represented by the SPDR S&P Metals and Mining ETF (XME) are down 20% YTD, after a dismal 2011 in which the average stock in the group retreated about 29%, mostly due to difficult macro-economic conditions globally. The group generally includes miners of iron, aluminum, copper and other ores, as well as gold and silver mining companies and coal mining companies. Our prior articles focused on the investments of mega fund managers in small and mid-cap gold miners, large-cap gold miners, and coal miners. In this article, via an analysis based on the latest available Q1 institutional 13-F filings, we identify the base metals mining companies, such as those mining for iron, copper, zinc, lead and nickel, that are being accumulated and those being distributed by the world's largest fund managers.
These mega fund managers, such as Fidelity Investments, Goldman Sachs, BlackRock Inc., Vanguard Group, and 22 others, manage between $100 billion and over $1 trillion each, and together control about 40% of the assets invested in the U.S. equity markets. Together, these mega fund managers are slightly bearish on the base metals mining group, cutting a net $7 million in Q1 from their $21.30 billion prior quarter position in the group (for more general information on these mega funds, please look at the end of the article).
The investing activities of these mega fund managers in the group in the prior quarter can be found here. The following are the metals mining companies that these mega fund managers are most bullish about (see Table):
Cliffs Natural Resources (CLF): CLF is a mining and natural resources company, producing iron ore pellets, lumps and fines iron ore, and metallurgical coal products. It operates six iron ore mines in MI, MN and eastern Canada; two iron ore mining complexes in western Australia; five metallurgical coal mines located in WV and AL; and one thermal coal mine in WV. Mega funds together added a net 3.07 million shares in Q1 to their 51.59 million share prior quarter position in the company, and taken together mega funds held $2.52 billion or 38.4% of the outstanding shares.
The top buyer was Los Angeles-based Capital World Investors, with over $294 billion in 13-F assets, that purchased 5.70 million shares. Other large mega fund purchasers included Goldman Sachs Group (1.01 million shares), with $836 billion in assets under management, and mutual fund powerhouse Fidelity Investments (0.65 million shares), with $555 billion in 13-F assets. Overall, institutional investors added 2.5 million shares to their 114.9 million share prior quarter position.
In its latest Q1 (March), CLF missed analyst revenue and earnings estimates by wide margins, with earnings also down year-over-year. The shares have plunged since the report, now down by about 35% post-report, and currently trade at 4-5 forward P/E, approximately at par with the average of 4.9 for its peers in the iron mining group, while earnings are projected to fall from $11.61 in 2011 to $9.58 in 2013.
The tumble in earnings and share prices is based on weakening outlook for both coal and iron ore, coal due to competition from lower-price natural gas, and iron ore due to softening Chinese demand. However, CLF along with many of its peers in the iron mining group are selling at bottom valuations, based on their historic P/E range. Also, technically CLF share prices are sitting at bottom support levels, and have been basing between $45 and $55. At current prices, CLF shares are priced at bargain levels, and have a favorable reward-risk ratio going forward, particularly if global macro-economic conditions improve.
Besides CLF, mega fund managers are also bullish on Alcoa Inc. (AA), that is engaged in the production and management of aluminum, fabricated aluminum, and alumina, in which mega funds together added a net 4.85 million shares to their 333.05 million share prior quarter position in the company.
The following are metals mining companies that mega funds are bearish about (see Table):
- Rio Tinto Plc (RIO), a U.K.-based company with global interests in mining that is engaged in mining for aluminum, borax, copper, gold, iron ore, lead, silver, tin, zinc, uranium, titanium, diamonds, talc and zircon, in which mega funds together cut a net 5.26 million shares from their 12.12 million share prior quarter position in the company;
- Freeport McMoran Copper & Gold (FCX), engaged in the exploration and development of copper, gold, silver and molybdenum mines in Indonesia, North and South America, in which mega funds together cut a net 3.25 million shares from their 309.35 million share prior quarter position in the company; and
- Rio De Janeiro, Brazil-based Vale SA (VALE), that is one of the world's leading mining companies, and specializes in the mining of iron ore and pellets, manganese, alloys, gold, copper, potassium, and kaolin, in which mega funds together cut a net 4.69 million shares from their 169.35 million share prior quarter position in the company.
General Methodology and Background Information: The latest available institutional 13-F filings of the largest 25 mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets. The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence.
This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.