Where Do Hedge Funds Stand On Valhi, Inc. (VHI)?

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. We at Insider Monkey have plowed through 817 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th, about a month before the elections. In this article we look at what those investors think of Valhi, Inc. (NYSE:VHI).

Is Valhi, Inc. (NYSE:VHI) the right investment to pursue these days? Prominent investors were cutting their exposure. The number of bullish hedge fund bets shrunk by 1 lately. Valhi, Inc. (NYSE:VHI) was in 3 hedge funds’ portfolios at the end of September. The all time high for this statistics is 10. Our calculations also showed that VHI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 4 hedge funds in our database with VHI holdings at the end of June.

Video: 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 S&P 500 ETFs by 66 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.

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. 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. Now let’s take a peek at the recent hedge fund action regarding Valhi, Inc. (NYSE:VHI).

What have hedge funds been doing with Valhi, Inc. (NYSE:VHI)?

At third quarter’s end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VHI over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Renaissance Technologies, founded by Jim Simons, holds the number one position in Valhi, Inc. (NYSE:VHI). Renaissance Technologies has a $2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Ali Motamed of Invenomic Capital Management, with a $0.7 million position; the fund has 0.4% of its 13F portfolio invested in the stock. In terms of the portfolio weights assigned to each position Invenomic Capital Management allocated the biggest weight to Valhi, Inc. (NYSE:VHI), around 0.41% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.002 percent of its 13F equity portfolio to VHI.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Kahn Brothers. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified VHI as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Valhi, Inc. (NYSE:VHI) but similarly valued. These stocks are WiMi Hologram Cloud Inc. (NASDAQ:WIMI), Wins Finance Holdings Inc. (NASDAQ:WINS), Tejon Ranch Company (NYSE:TRC), Vermilion Energy Inc (NYSE:VET), Lawson Products, Inc. (NASDAQ:LAWS), Corvus Gold Inc. (NASDAQ:KOR), and Amerant Bancorp Inc. (NASDAQ:AMTB). This group of stocks’ market values resemble VHI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.9 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $3 million in VHI’s case. Tejon Ranch Company (NYSE:TRC) is the most popular stock in this table. On the other hand Wins Finance Holdings Inc. (NASDAQ:WINS) is the least popular one with only 1 bullish hedge fund positions. Valhi, Inc. (NYSE:VHI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VHI is 21.3. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on VHI as the stock returned 9.5% since the end of the third quarter (through 11/23) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.