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Hedge Fund Favorites vs. Constellium SE (CSTM) In 2019

Asma UL Husna

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 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. 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 Constellium SE (NYSE:CSTM).

Is Constellium SE (NYSE:CSTM) a buy, sell, or hold? Investors who are in the know are becoming more confident. The number of long hedge fund bets advanced by 6 lately. Our calculations also showed that CSTM 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). CSTM was in 43 hedge funds' portfolios at the end of September. There were 37 hedge funds in our database with CSTM holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_364882" align="aligncenter" width="450"] Mark Kingdon of Kingdon Capital[/caption]

Mark Kingdon - Kingdon Capital

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. Now we're going to take a glance at the latest hedge fund action regarding Constellium SE (NYSE:CSTM).

Hedge fund activity in Constellium SE (NYSE:CSTM)

Heading into the fourth quarter of 2019, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CSTM over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Jared Nussbaum's Nut Tree Capital has the largest position in Constellium SE (NYSE:CSTM), worth close to $46.2 million, amounting to 14.2% of its total 13F portfolio. The second largest stake is held by Peter S. Park of Park West Asset Management, with a $29.4 million position; the fund has 1.4% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism include Mark Kingdon's Kingdon Capital, David Rosen's Rubric Capital Management and Richard Driehaus's Driehaus Capital. In terms of the portfolio weights assigned to each position Bronson Point Partners allocated the biggest weight to Constellium SE (NYSE:CSTM), around 25.08% of its 13F portfolio. SkyTop Capital Management is also relatively very bullish on the stock, earmarking 15.61 percent of its 13F equity portfolio to CSTM.

Consequently, specific money managers have jumped into Constellium SE (NYSE:CSTM) headfirst. Driehaus Capital, managed by Richard Driehaus, assembled the most outsized position in Constellium SE (NYSE:CSTM). Driehaus Capital had $25.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $5.1 million position during the quarter. The other funds with new positions in the stock are Minhua Zhang's Weld Capital Management, Curtis Schenker and Craig Effron's Scoggin, and Nick Thakore's Diametric Capital.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Constellium SE (NYSE:CSTM) but similarly valued. We will take a look at iRobot Corporation (NASDAQ:IRBT), Trinseo S.A. (NYSE:TSE), Bottomline Technologies (de), Inc. (NASDAQ:EPAY), and FGL Holdings (NYSE:FG). This group of stocks' market valuations resemble CSTM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IRBT,11,52517,2 TSE,13,85449,-10 EPAY,19,85411,3 FG,23,175870,-1 Average,16.5,99812,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $412 million in CSTM's case. FGL Holdings (NYSE:FG) is the most popular stock in this table. On the other hand iRobot Corporation (NASDAQ:IRBT) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Constellium SE (NYSE:CSTM) is more popular among hedge funds. 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. Hedge funds were also right about betting on CSTM as the stock returned 97.1% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. 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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