Did Hedge Funds Make The Right Call On Cabot Corporation (CBT) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtCabot Corporation (NYSE:CBT) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Cabot Corporation (NYSE:CBT) was in 23 hedge funds’ portfolios at the end of March. CBT investors should be aware of a decrease in hedge fund interest recently. There were 29 hedge funds in our database with CBT holdings at the end of the previous quarter. Our calculations also showed that CBT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

To the average investor there are many metrics market participants can use to size up stocks. A pair of the most innovative metrics are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can outperform the S&P 500 by a solid margin (see the details here).

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s take a look at the latest hedge fund action surrounding Cabot Corporation (NYSE:CBT).

What have hedge funds been doing with Cabot Corporation (NYSE:CBT)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in CBT a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of Cabot Corporation (NYSE:CBT), with a stake worth $25.4 million reported as of the end of September. Trailing AQR Capital Management was Two Sigma Advisors, which amassed a stake valued at $5.9 million. GLG Partners, Citadel Investment Group, and Millennium Management 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 Invenomic Capital Management allocated the biggest weight to Cabot Corporation (NYSE:CBT), around 0.75% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, setting aside 0.5 percent of its 13F equity portfolio to CBT.

Since Cabot Corporation (NYSE:CBT) has experienced a decline in interest from hedge fund managers, logic holds that there is a sect of funds that slashed their positions entirely by the end of the first quarter. It’s worth mentioning that Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, comprising close to $31.7 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also said goodbye to its stock, about $2.6 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 6 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cabot Corporation (NYSE:CBT) but similarly valued. We will take a look at Insight Enterprises, Inc. (NASDAQ:NSIT), Holly Energy Partners, L.P. (NYSE:HEP), Taylor Morrison Home Corp (NYSE:TMHC), and AssetMark Financial Holdings, Inc. (NYSE:AMK). This group of stocks’ market valuations are closest to CBT’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $58 million in CBT’s case. Taylor Morrison Home Corp (NYSE:TMHC) is the most popular stock in this table. On the other hand AssetMark Financial Holdings, Inc. (NYSE:AMK) is the least popular one with only 4 bullish hedge fund positions. Cabot Corporation (NYSE:CBT) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on CBT as the stock returned 43.2% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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