Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Element Solutions Inc (NYSE:ESI) to find out whether it was one of their high conviction long-term ideas.
Element Solutions Inc (NYSE:ESI) investors should pay attention to an increase in support from the world’s most elite money managers recently. ESI was in 32 hedge funds’ portfolios at the end of March. There were 21 hedge funds in our database with ESI holdings at the end of the previous quarter. Our calculations also showed that esi isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a gander at the fresh hedge fund action surrounding Element Solutions Inc (NYSE:ESI).
How have hedgies been trading Element Solutions Inc (NYSE:ESI)?
Heading into the second quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 52% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in ESI a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Bares Capital Management held the most valuable stake in Element Solutions Inc (NYSE:ESI), which was worth $165.4 million at the end of the first quarter. On the second spot was Glenview Capital which amassed $118.1 million worth of shares. Moreover, Elliott Management, Gates Capital Management, and Blue Mountain Capital were also bullish on Element Solutions Inc (NYSE:ESI), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, specific money managers were leading the bulls’ herd. Bares Capital Management, managed by Brian Bares, established the most outsized position in Element Solutions Inc (NYSE:ESI). Bares Capital Management had $165.4 million invested in the company at the end of the quarter. Paul Singer’s Elliott Management also made a $110.6 million investment in the stock during the quarter. The following funds were also among the new ESI investors: Phill Gross and Robert Atchinson’s Adage Capital Management, Israel Englander’s Millennium Management, and Benjamin A. Smith’s Laurion Capital Management.
Let’s now review 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 YETI Holdings, Inc. (NYSE:YETI), Reata Pharmaceuticals, Inc. (NASDAQ:RETA), Dana Incorporated (NYSE:DAN), and SailPoint Technologies Holdings, Inc. (NYSE:SAIL). This group of stocks’ market values are closest to ESI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| YETI | 14 | 49603 | 4 |
| RETA | 18 | 255693 | 1 |
| DAN | 27 | 342929 | -1 |
| SAIL | 27 | 258676 | 5 |
| Average | 21.5 | 226725 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $227 million. That figure was $675 million in ESI’s case. Dana Incorporated (NYSE:DAN) is the most popular stock in this table. On the other hand YETI Holdings, Inc. (NYSE:YETI) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Element Solutions Inc (NYSE:ESI) 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 ESI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ESI were disappointed as the stock returned -4.3% 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.
