We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Albemarle Corporation (NYSE:ALB).
Albemarle Corporation (NYSE:ALB) has seen an increase in hedge fund sentiment recently. ALB was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 18 hedge funds in our database with ALB holdings at the end of the previous quarter. Our calculations also showed that ALB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you’d ask most traders, hedge funds are assumed to be worthless, outdated investment vehicles of yesteryear. While there are more than 8000 funds in operation today, We choose to focus on the crème de la crème of this club, approximately 850 funds. These hedge fund managers orchestrate most of the hedge fund industry’s total asset base, and by keeping track of their best picks, Insider Monkey has brought to light a few investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the new hedge fund action regarding Albemarle Corporation (NYSE:ALB).
What does smart money think about Albemarle Corporation (NYSE:ALB)?
At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 28% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in ALB over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of Albemarle Corporation (NYSE:ALB), with a stake worth $24.4 million reported as of the end of September. Trailing Millennium Management was Citadel Investment Group, which amassed a stake valued at $19.4 million. Citadel Investment Group, Bronson Point Partners, and Paloma Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Bronson Point Partners allocated the biggest weight to Albemarle Corporation (NYSE:ALB), around 7.86% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, designating 1.08 percent of its 13F equity portfolio to ALB.
As one would reasonably expect, key hedge funds have jumped into Albemarle Corporation (NYSE:ALB) headfirst. Millennium Management, managed by Israel Englander, established the largest position in Albemarle Corporation (NYSE:ALB). Millennium Management had $24.4 million invested in the company at the end of the quarter. Larry Foley and Paul Farrell’s Bronson Point Partners also initiated a $14 million position during the quarter. The following funds were also among the new ALB investors: Donald Sussman’s Paloma Partners, Sara Nainzadeh’s Centenus Global Management, and Ray Dalio’s Bridgewater Associates.
Let’s now review hedge fund activity in other stocks similar to Albemarle Corporation (NYSE:ALB). We will take a look at Monolithic Power Systems, Inc. (NASDAQ:MPWR), Post Holdings Inc (NYSE:POST), Pentair plc (NYSE:PNR), and ABIOMED, Inc. (NASDAQ:ABMD). All of these stocks’ market caps are similar to ALB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MPWR | 27 | 325420 | 1 |
| POST | 38 | 1515106 | 10 |
| PNR | 26 | 507381 | 1 |
| ABMD | 35 | 679670 | 11 |
| Average | 31.5 | 756894 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $757 million. That figure was $116 million in ALB’s case. Post Holdings Inc (NYSE:POST) is the most popular stock in this table. On the other hand Pentair plc (NYSE:PNR) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Albemarle Corporation (NYSE:ALB) is even less popular than PNR. Hedge funds clearly dropped the ball on ALB as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on ALB as the stock returned -18.8% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
