Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Olin Corporation (NYSE:OLN) shareholders have witnessed an increase in hedge fund interest in recent months. Our calculations also showed that OLN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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' 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_735641" align="aligncenter" width="473"] Michael Lowenstein of Kensico Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the recent hedge fund action regarding Olin Corporation (NYSE:OLN).
What have hedge funds been doing with Olin Corporation (NYSE:OLN)?
At Q3's end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards OLN over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Olin Corporation (NYSE:OLN) was held by Adage Capital Management, which reported holding $166.7 million worth of stock at the end of September. It was followed by Kensico Capital with a $139 million position. Other investors bullish on the company included RR Partners, BeaconLight Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Proxima Capital Management allocated the biggest weight to Olin Corporation (NYSE:OLN), around 9.42% of its portfolio. Soapstone Capital is also relatively very bullish on the stock, setting aside 7.9 percent of its 13F equity portfolio to OLN.
As one would reasonably expect, specific money managers have jumped into Olin Corporation (NYSE:OLN) headfirst. Millennium Management, managed by Israel Englander, established the most valuable position in Olin Corporation (NYSE:OLN). Millennium Management had $13.5 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $2.9 million position during the quarter. The other funds with brand new OLN positions are Michael Gelband's ExodusPoint Capital, Cliff Asness's AQR Capital Management, and Paul Marshall and Ian Wace's Marshall Wace.
Let's go over hedge fund activity in other stocks similar to Olin Corporation (NYSE:OLN). We will take a look at Agree Realty Corporation (NYSE:ADC), Alkermes Plc (NASDAQ:ALKS), Lithia Motors Inc (NYSE:LAD), and Grocery Outlet Holding Corp. (NASDAQ:GO). This group of stocks' market valuations resemble OLN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADC,9,113090,-2 ALKS,24,360734,1 LAD,24,628887,3 GO,15,63095,-6 Average,18,291452,-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 $291 million. That figure was $490 million in OLN's case. Alkermes Plc (NASDAQ:ALKS) is the most popular stock in this table. On the other hand Agree Realty Corporation (NYSE:ADC) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Olin Corporation (NYSE:OLN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately OLN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on OLN were disappointed as the stock returned -5.4% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.