U.S. Markets closed

Did Hedge Funds Drop The Ball On Ingevity Corporation (NGVT) ?

Nina Todic

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Ingevity Corporation (NYSE:NGVT).

Ingevity Corporation (NYSE:NGVT) has experienced a decrease in enthusiasm from smart money in recent months. NGVT was in 17 hedge funds' portfolios at the end of December. There were 19 hedge funds in our database with NGVT holdings at the end of the previous quarter. Our calculations also showed that ngvt isn't among the 30 most popular stocks among hedge funds.

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' 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CHILTON INVESTMENT COMPANY

Let's go over the new hedge fund action encompassing Ingevity Corporation (NYSE:NGVT).

How are hedge funds trading Ingevity Corporation (NYSE:NGVT)?

At Q4's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards NGVT over the last 14 quarters. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

No of Hedge Funds With NGVT Positions

The largest stake in Ingevity Corporation (NYSE:NGVT) was held by Chilton Investment Company, which reported holding $60.1 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $21.4 million position. Other investors bullish on the company included Royce & Associates, Marshall Wace LLP, and Driehaus Capital.

Because Ingevity Corporation (NYSE:NGVT) has witnessed falling interest from the smart money, it's safe to say that there exists a select few fund managers who were dropping their positions entirely in the third quarter. Intriguingly, Principal Global Investors's Columbus Circle Investors dropped the largest investment of the 700 funds followed by Insider Monkey, worth an estimated $9.9 million in stock. Clint Carlson's fund, Carlson Capital, also cut its stock, about $7.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Ingevity Corporation (NYSE:NGVT) but similarly valued. These stocks are Umpqua Holdings Corp (NASDAQ:UMPQ), Wyndham Destinations, Inc. (NYSE:WYND), Peabody Energy Corporation (NYSE:BTU), and Radian Group Inc (NYSE:RDN). This group of stocks' market valuations are similar to NGVT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UMPQ,20,283820,0 WYND,20,473616,-2 BTU,31,1750663,-3 RDN,24,154880,0 Average,23.75,665745,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $666 million. That figure was $123 million in NGVT's case. Peabody Energy Corporation (NYSE:BTU) is the most popular stock in this table. On the other hand Umpqua Holdings Corp (NASDAQ:UMPQ) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Ingevity Corporation (NYSE:NGVT) is even less popular than UMPQ. Hedge funds clearly dropped the ball on NGVT as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on NGVT as the stock returned 32.2% and outperformed the market by an even larger margin.

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

Related Content