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 Celanese Corporation (NYSE:CE).
Is Celanese Corporation (NYSE:CE) an exceptional investment now? Prominent investors were buying. The number of long hedge fund positions rose by 4 in recent months. Celanese Corporation (NYSE:CE) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistics is 33. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 29 hedge funds in our database with CE positions at the end of the first quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a peek at the recent hedge fund action surrounding Celanese Corporation (NYSE:CE).
What have hedge funds been doing with Celanese Corporation (NYSE:CE)?
At the end of the second quarter, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the first quarter of 2020. By comparison, 20 hedge funds held shares or bullish call options in CE a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Lyrical Asset Management was the largest shareholder of Celanese Corporation (NYSE:CE), with a stake worth $237.1 million reported as of the end of June. Trailing Lyrical Asset Management was GMT Capital, which amassed a stake valued at $197.6 million. Holocene Advisors, Millennium Management, and Citadel Investment Group 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 GMT Capital allocated the biggest weight to Celanese Corporation (NYSE:CE), around 11.12% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, designating 4.67 percent of its 13F equity portfolio to CE.
As aggregate interest increased, specific money managers have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, created the most valuable position in Celanese Corporation (NYSE:CE). Holocene Advisors had $80.5 million invested in the company at the end of the quarter. Michael Cowley’s Sandbar Asset Management also made a $5.2 million investment in the stock during the quarter. The other funds with brand new CE positions are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Michael Gelband’s ExodusPoint Capital, and Greg Poole’s Echo Street Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Celanese Corporation (NYSE:CE) but similarly valued. We will take a look at Discovery Inc. (NASDAQ:DISCA), Concho Resources Inc. (NYSE:CXO), Lyft, Inc. (NASDAQ:LYFT), Zendesk Inc (NYSE:ZEN), Bio-Techne Corporation (NASDAQ:TECH), United Airlines Holdings Inc (NYSE:UAL), and Erie Indemnity Company (NASDAQ:ERIE). All of these stocks’ market caps are closest to CE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DISCA | 29 | 276418 | -3 |
| CXO | 44 | 963633 | 13 |
| LYFT | 30 | 324369 | -1 |
| ZEN | 63 | 1579039 | 8 |
| TECH | 27 | 278924 | 1 |
| UAL | 38 | 917094 | -3 |
| ERIE | 14 | 42805 | -3 |
| Average | 35 | 626040 | 1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $626 million. That figure was $695 million in CE’s case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 14 bullish hedge fund positions. Celanese Corporation (NYSE:CE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CE is 58.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on CE as the stock returned 33% since the end of the second quarter (through 10/30) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
