At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Valhi, Inc. (NYSE:VHI).
Valhi, Inc. (NYSE:VHI) was in 5 hedge funds' portfolios at the end of March. VHI shareholders have witnessed a decrease in hedge fund interest lately. There were 7 hedge funds in our database with VHI holdings at the end of the previous quarter. Our calculations also showed that VHI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
If you'd ask most market participants, hedge funds are assumed to be worthless, old financial tools of years past. While there are greater than 8000 funds trading at the moment, Our researchers look at the upper echelon of this club, about 850 funds. Most estimates calculate that this group of people handle most of all hedge funds' total asset base, and by tracking their matchless picks, Insider Monkey has determined several investment strategies that have historically outperformed the S&P 500 index. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
[caption id="attachment_728717" align="aligncenter" width="395"] Roger Ibbotson of Zebra Capital Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a gander at the fresh hedge fund action surrounding Valhi, Inc. (NYSE:VHI).
What have hedge funds been doing with Valhi, Inc. (NYSE:VHI)?
Heading into the second quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from one quarter earlier. On the other hand, there were a total of 6 hedge funds with a bullish position in VHI a year ago. 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 Valhi, Inc. (NYSE:VHI) was held by Renaissance Technologies, which reported holding $1.6 million worth of stock at the end of September. It was followed by Millennium Management with a $0.2 million position. Other investors bullish on the company included Zebra Capital Management, Two Sigma Advisors, and Kahn Brothers. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Valhi, Inc. (NYSE:VHI), around 0.08% of its 13F portfolio. Kahn Brothers is also relatively very bullish on the stock, dishing out 0.002 percent of its 13F equity portfolio to VHI.
Because Valhi, Inc. (NYSE:VHI) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain "tier" of money managers who sold off their positions entirely in the first quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the largest position of all the hedgies watched by Insider Monkey, totaling an estimated $0.6 million in stock. Ken Griffin's fund, Citadel Investment Group, also cut its stock, about $0 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds in the first quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Valhi, Inc. (NYSE:VHI) but similarly valued. We will take a look at CytomX Therapeutics, Inc. (NASDAQ:CTMX), Rosetta Stone Inc (NYSE:RST), Utah Medical Products, Inc. (NASDAQ:UTMD), and Tekla Life Sciences Investors (NYSE:HQL). All of these stocks' market caps are closest to VHI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTMX,22,98918,0 RST,22,96350,4 UTMD,6,32769,0 HQL,1,277,-2 Average,12.75,57079,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $2 million in VHI's case. CytomX Therapeutics, Inc. (NASDAQ:CTMX) is the most popular stock in this table. On the other hand Tekla Life Sciences Investors (NYSE:HQL) is the least popular one with only 1 bullish hedge fund positions. Valhi, Inc. (NYSE:VHI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately VHI wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VHI investors were disappointed as the stock returned -24.3% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.