The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on September 30th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Westlake Chemical Corporation (NYSE:WLK) based on those filings.
Is Westlake Chemical Corporation (NYSE:WLK) a marvelous stock to buy now? The smart money is reducing their bets on the stock. The number of long hedge fund bets decreased by 5 recently. Our calculations also showed that WLK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Lee Ainslie of Maverick Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the latest hedge fund action surrounding Westlake Chemical Corporation (NYSE:WLK).
How are hedge funds trading Westlake Chemical Corporation (NYSE:WLK)?
At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in WLK a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, Maverick Capital was the largest shareholder of Westlake Chemical Corporation (NYSE:WLK), with a stake worth $213.8 million reported as of the end of September. Trailing Maverick Capital was Adage Capital Management, which amassed a stake valued at $82.2 million. Millennium Management, Sprott Asset Management, and MFP Investors 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 Maverick Capital allocated the biggest weight to Westlake Chemical Corporation (NYSE:WLK), around 3.14% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, designating 2.26 percent of its 13F equity portfolio to WLK.
Due to the fact that Westlake Chemical Corporation (NYSE:WLK) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of fund managers who sold off their entire stakes by the end of the third quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management dropped the largest stake of the “upper crust” of funds monitored by Insider Monkey, comprising about $40 million in stock, and Thomas E. Claugus’s GMT Capital was right behind this move, as the fund sold off about $6.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Westlake Chemical Corporation (NYSE:WLK). We will take a look at Cognex Corporation (NASDAQ:CGNX), News Corporation (NASDAQ:NWS), Avantor, Inc. (NYSE:AVTR), and The Interpublic Group of Companies, Inc. (NYSE:IPG). This group of stocks’ market valuations are similar to WLK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CGNX | 18 | 179338 | 5 |
| NWS | 11 | 33867 | 2 |
| AVTR | 26 | 524476 | -4 |
| IPG | 24 | 755230 | -8 |
| Average | 19.75 | 373228 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $373 million. That figure was $353 million in WLK’s case. Avantor, Inc. (NYSE:AVTR) is the most popular stock in this table. On the other hand News Corporation (NASDAQ:NWS) is the least popular one with only 11 bullish hedge fund positions. Westlake Chemical Corporation (NYSE:WLK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WLK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WLK investors were disappointed as the stock returned 5.2% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
