We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Element Solutions Inc (NYSE:ESI).
Element Solutions Inc (NYSE:ESI) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that ESI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). However, overall sentiment towards the stock still points to the fact that hedge funds think ESI is a good stock to buy.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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.
Larry Robbins of Glenview Capital
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the fresh hedge fund action encompassing Element Solutions Inc (NYSE:ESI).
What does smart money think about Element Solutions Inc (NYSE:ESI)?
At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the second quarter of 2019. On the other hand, there were a total of 24 hedge funds with a bullish position in ESI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bares Capital Management, managed by Brian Bares, holds the number one position in Element Solutions Inc (NYSE:ESI). Bares Capital Management has a $127.3 million position in the stock, comprising 3.8% of its 13F portfolio. Sitting at the No. 2 spot is Larry Robbins of Glenview Capital, with a $119 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions consist of Paul Singer’s Elliott Management, Jeffrey Gates’s Gates Capital Management and Curtis Schenker and Craig Effron’s Scoggin. In terms of the portfolio weights assigned to each position Scoggin allocated the biggest weight to Element Solutions Inc (NYSE:ESI), around 8.47% of its portfolio. Gates Capital Management is also relatively very bullish on the stock, dishing out 4.35 percent of its 13F equity portfolio to ESI.
Seeing as Element Solutions Inc (NYSE:ESI) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there were a few money managers that slashed their positions entirely in the third quarter. At the top of the heap, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital cut the biggest position of all the hedgies monitored by Insider Monkey, totaling close to $36.3 million in stock, and Ian Simm’s Impax Asset Management was right behind this move, as the fund cut about $6.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Element Solutions Inc (NYSE:ESI) but similarly valued. We will take a look at Wright Medical Group N.V. (NASDAQ:WMGI), Sunoco LP (NYSE:SUN), Arco Platform Limited (NASDAQ:ARCE), and Vermilion Energy Inc (NYSE:VET). This group of stocks’ market valuations are closest to ESI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WMGI | 35 | 705939 | 1 |
| SUN | 3 | 6682 | -3 |
| ARCE | 12 | 60723 | 3 |
| VET | 10 | 46500 | 3 |
| Average | 15 | 204961 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $205 million. That figure was $605 million in ESI’s case. Wright Medical Group N.V. (NASDAQ:WMGI) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 3 bullish hedge fund positions. Element Solutions Inc (NYSE:ESI) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on ESI as the stock returned 14.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
