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2019 Review: Most Favored Hedge Fund Stocks vs. Huntsman Corporation (HUN)

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57% each. Hedge funds' top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by nearly 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Huntsman Corporation (NYSE:HUN).

Huntsman Corporation (NYSE:HUN) was in 28 hedge funds' portfolios at the end of the third quarter of 2019. HUN has seen a decrease in support from the world's most elite money managers in recent months. There were 30 hedge funds in our database with HUN positions at the end of the previous quarter. Our calculations also showed that HUN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to take a gander at the recent hedge fund action regarding Huntsman Corporation (NYSE:HUN).

How have hedgies been trading Huntsman Corporation (NYSE:HUN)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HUN over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Huntsman Corporation (NYSE:HUN) was held by Two Sigma Advisors, which reported holding $65.4 million worth of stock at the end of September. It was followed by Royce & Associates with a $55.5 million position. Other investors bullish on the company included Point72 Asset Management, AQR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Swift Run Capital Management allocated the biggest weight to Huntsman Corporation (NYSE:HUN), around 10.08% of its 13F portfolio. Albar Capital is also relatively very bullish on the stock, designating 5.47 percent of its 13F equity portfolio to HUN.

Due to the fact that Huntsman Corporation (NYSE:HUN) has witnessed falling interest from the aggregate hedge fund industry, we can see that there lies a certain "tier" of funds that elected to cut their positions entirely in the third quarter. Interestingly, David Cohen and Harold Levy's Iridian Asset Management sold off the largest stake of the 750 funds tracked by Insider Monkey, worth an estimated $102.1 million in stock, and Phill Gross and Robert Atchinson's Adage Capital Management was right behind this move, as the fund sold off about $6.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the third quarter.

Let's also examine hedge fund activity in other stocks similar to Huntsman Corporation (NYSE:HUN). These stocks are SmileDirectClub, Inc. (NASDAQ:SDC), Primerica, Inc. (NYSE:PRI), Aluminum Corporation of China Limited (NYSE:ACH), and Parsley Energy Inc (NYSE:PE). This group of stocks' market valuations match HUN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SDC,28,287514,28 PRI,23,340762,-3 ACH,3,4206,-2 PE,44,778914,8 Average,24.5,352849,7.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $353 million. That figure was $395 million in HUN's case. Parsley Energy Inc (NYSE:PE) is the most popular stock in this table. On the other hand Aluminum Corporation of China Limited (NYSE:ACH) is the least popular one with only 3 bullish hedge fund positions. Huntsman Corporation (NYSE:HUN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately HUN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HUN were disappointed as the stock returned 30.8% in 2019 (through December 23rd) 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 many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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