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Do Hedge Funds Love Huntsman Corporation (HUN)?

Reymerlyn Martin

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.

Is Huntsman Corporation (NYSE:HUN) the right investment to pursue these days? Prominent investors are selling. The number of long hedge fund bets were trimmed by 5 recently. Our calculations also showed that HUN 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' 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 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 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.

Steven Tananbaum - GoldenTree Asset Management

Let's analyze the key hedge fund action surrounding Huntsman Corporation (NYSE:HUN).

How are hedge funds trading Huntsman Corporation (NYSE:HUN)?

At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the previous quarter. By comparison, 40 hedge funds held shares or bullish call options in HUN a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

HUN_apr2019

The largest stake in Huntsman Corporation (NYSE:HUN) was held by Iridian Asset Management, which reported holding $113.2 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $65.9 million position. Other investors bullish on the company included Atlantic Investment Management, Royce & Associates, and GoldenTree Asset Management.

Seeing as Huntsman Corporation (NYSE:HUN) has witnessed a decline in interest from the smart money, logic holds that there is a sect of funds that elected to cut their positions entirely in the third quarter. Interestingly, David Tepper's Appaloosa Management LP dropped the biggest stake of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $55.3 million in stock. Richard Driehaus's fund, Driehaus Capital, also dropped its stock, about $8.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 5 funds in the third quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Huntsman Corporation (NYSE:HUN) but similarly valued. These stocks are Woodward Inc (NASDAQ:WWD), Alkermes Plc (NASDAQ:ALKS), Proofpoint Inc (NASDAQ:PFPT), and Hudson Pacific Properties Inc (NYSE:HPP). 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 WWD,14,193689,0 ALKS,19,175362,3 PFPT,27,501166,2 HPP,12,361481,-1 Average,18,307925,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $308 million. That figure was $464 million in HUN's case. Proofpoint Inc (NASDAQ:PFPT) is the most popular stock in this table. On the other hand Hudson Pacific Properties Inc (NYSE:HPP) is the least popular one with only 12 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. 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. Hedge funds were also right about betting on HUN as the stock returned 26.5% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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