Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Huntsman Corporation (NYSE:HUN).
Is Huntsman Corporation (NYSE:HUN) an attractive investment now? The smart money is becoming less confident. The number of bullish hedge fund bets retreated by 5 in recent months. Our calculations also showed that HUN isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the latest hedge fund action encompassing Huntsman Corporation (NYSE:HUN).
Hedge fund activity in Huntsman Corporation (NYSE:HUN)
At the end of the second quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in HUN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Iridian Asset Management held the most valuable stake in Huntsman Corporation (NYSE:HUN), which was worth $102.1 million at the end of the second quarter. On the second spot was Two Sigma Advisors which amassed $60.1 million worth of shares. Moreover, Royce & Associates, GoldenTree Asset Management, and Atlantic Investment Management were also bullish on Huntsman Corporation (NYSE:HUN), allocating a large percentage of their portfolios to this stock.
Since Huntsman Corporation (NYSE:HUN) has witnessed falling interest from the smart money, it’s easy to see that there were a few hedgies who sold off their entire stakes in the second quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest stake of the “upper crust” of funds monitored by Insider Monkey, valued at close to $18 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $17.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds in the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Huntsman Corporation (NYSE:HUN). We will take a look at Moderna, Inc. (NASDAQ:MRNA), Banco Macro SA (NYSE:BMA), Avnet, Inc. (NYSE:AVT), and New York Community Bancorp, Inc. (NYSE:NYCB). This group of stocks’ market caps are closest to HUN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MRNA | 18 | 251106 | 3 |
| BMA | 10 | 256737 | -6 |
| AVT | 27 | 609308 | 10 |
| NYCB | 19 | 194360 | 7 |
| Average | 18.5 | 327878 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $328 million. That figure was $414 million in HUN’s case. Avnet, Inc. (NYSE:AVT) is the most popular stock in this table. On the other hand Banco Macro SA (NYSE:BMA) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Huntsman Corporation (NYSE:HUN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on HUN as the stock returned 14.6% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
