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 (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Hexcel Corporation (NYSE:HXL) based on that data.
Hexcel Corporation (NYSE:HXL) shareholders have witnessed an increase in hedge fund sentiment of late. Our calculations also showed that HXL 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).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
Tom Gayner of Markel Gayner Asset 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 we’re going to review the recent hedge fund action encompassing Hexcel Corporation (NYSE:HXL).
Hedge fund activity in Hexcel Corporation (NYSE:HXL)
At Q4’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the third quarter of 2019. By comparison, 23 hedge funds held shares or bullish call options in HXL a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Hexcel Corporation (NYSE:HXL). AQR Capital Management has a $14 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Tom Gayner of Markel Gayner Asset Management, with a $13.5 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism consist of Renaissance Technologies, D. E. Shaw’s D E Shaw and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Neo Ivy Capital allocated the biggest weight to Hexcel Corporation (NYSE:HXL), around 0.81% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.35 percent of its 13F equity portfolio to HXL.
With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Paloma Partners, managed by Donald Sussman, established the biggest position in Hexcel Corporation (NYSE:HXL). Paloma Partners had $1.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $1.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Lee Ainslie’s Maverick Capital, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Renee Yao’s Neo Ivy Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Hexcel Corporation (NYSE:HXL) but similarly valued. These stocks are Sonoco Products Company (NYSE:SON), Syneos Health, Inc. (NASDAQ:SYNH), LATAM Airlines Group S.A. (NYSE:LTM), and Sealed Air Corporation (NYSE:SEE). All of these stocks’ market caps are similar to HXL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SON | 24 | 112367 | 0 |
| SYNH | 20 | 185269 | -1 |
| LTM | 14 | 33316 | 4 |
| SEE | 30 | 860935 | -4 |
| Average | 22 | 297972 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $298 million. That figure was $103 million in HXL’s case. Sealed Air Corporation (NYSE:SEE) is the most popular stock in this table. On the other hand LATAM Airlines Group S.A. (NYSE:LTM) is the least popular one with only 14 bullish hedge fund positions. Hexcel Corporation (NYSE:HXL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately HXL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HXL were disappointed as the stock returned -45% during the same time period 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 many of these stocks already outperformed the market so far this year.
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.
