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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. What do these smart investors think about International Paper Company (NYSE:IP)?
Is International Paper Company (NYSE:IP) an exceptional investment today? Hedge funds are in a bearish mood. The number of long hedge fund bets shrunk by 3 in recent months. Our calculations also showed that IP 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). IP was in 25 hedge funds’ portfolios at the end of December. There were 28 hedge funds in our database with IP holdings at the end of the previous quarter.
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 S&P 500 ETFs by more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to go over the recent hedge fund action regarding International Paper Company (NYSE:IP).
What does smart money think about International Paper Company (NYSE:IP)?
Heading into the first quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. By comparison, 34 hedge funds held shares or bullish call options in IP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in International Paper Company (NYSE:IP), which was worth $150.9 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $21.4 million worth of shares. Citadel Investment Group, 12th Street Asset Management, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position 12th Street Asset Management allocated the biggest weight to International Paper Company (NYSE:IP), around 4.22% of its 13F portfolio. Game Creek Capital is also relatively very bullish on the stock, earmarking 0.69 percent of its 13F equity portfolio to IP.
Judging by the fact that International Paper Company (NYSE:IP) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of money managers that elected to cut their full holdings heading into Q4. Interestingly, Renaissance Technologies sold off the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth close to $21.2 million in stock. Ken Griffin’s fund, Citadel Investment Group, also cut its stock, about $6.9 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to International Paper Company (NYSE:IP). We will take a look at Yum China Holdings, Inc. (NYSE:YUMC), CMS Energy Corporation (NYSE:CMS), Marvell Technology Group Ltd. (NASDAQ:MRVL), and Arthur J. Gallagher & Co. (NYSE:AJG). This group of stocks’ market values resemble IP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| YUMC | 29 | 699257 | -5 |
| CMS | 30 | 526352 | 0 |
| MRVL | 29 | 584397 | -5 |
| AJG | 31 | 395355 | 4 |
| Average | 29.75 | 551340 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $551 million. That figure was $273 million in IP’s case. Arthur J. Gallagher & Co. (NYSE:AJG) is the most popular stock in this table. On the other hand Yum China Holdings, Inc. (NYSE:YUMC) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks International Paper Company (NYSE:IP) is even less popular than YUMC. Hedge funds dodged a bullet by taking a bearish stance towards IP. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately IP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); IP investors were disappointed as the stock returned -25.5% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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.
