World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Is PolyOne Corporation (NYSE:POL) a buy here? Hedge funds are turning bullish. The number of long hedge fund positions went up by 4 recently. Our calculations also showed that pol isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Cliff Asness of AQR Capital Management
We’re going to take a look at the recent hedge fund action surrounding PolyOne Corporation (NYSE:POL).
What have hedge funds been doing with PolyOne Corporation (NYSE:POL)?
At Q1’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards POL over the last 15 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of PolyOne Corporation (NYSE:POL), with a stake worth $23.4 million reported as of the end of March. Trailing Millennium Management was Arrowstreet Capital, which amassed a stake valued at $22.6 million. AQR Capital Management, D E Shaw, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, some big names were leading the bulls’ herd. Weld Capital Management, managed by Minhua Zhang, established the biggest position in PolyOne Corporation (NYSE:POL). Weld Capital Management had $2.2 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $1.6 million position during the quarter. The other funds with new positions in the stock are Benjamin A. Smith’s Laurion Capital Management, Steve Cohen’s Point72 Asset Management, and Bruce Kovner’s Caxton Associates LP.
Let’s check out hedge fund activity in other stocks similar to PolyOne Corporation (NYSE:POL). These stocks are Washington Real Estate Investment Trust (NYSE:WRE), Covanta Holding Corporation (NYSE:CVA), Simmons First National Corporation (NASDAQ:SFNC), and Terex Corporation (NYSE:TEX). This group of stocks’ market caps are closest to POL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WRE | 9 | 89215 | -5 |
| CVA | 18 | 91758 | -2 |
| SFNC | 9 | 16011 | 2 |
| TEX | 21 | 353360 | 8 |
| Average | 14.25 | 137586 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $151 million in POL’s case. Terex Corporation (NYSE:TEX) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks PolyOne Corporation (NYSE:POL) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately POL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on POL were disappointed as the stock returned -13.3% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
