We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like LyondellBasell Industries NV (NYSE:LYB).
LyondellBasell Industries NV (NYSE:LYB) shareholders have witnessed a decrease in support from the world's most elite money managers recently. LYB was in 31 hedge funds' portfolios at the end of the third quarter of 2019. There were 45 hedge funds in our database with LYB positions at the end of the previous quarter. Our calculations also showed that LYB 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_26869" align="aligncenter" width="508"] Larry Robbins of Glenview 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. Let's analyze the latest hedge fund action encompassing LyondellBasell Industries NV (NYSE:LYB).
Hedge fund activity in LyondellBasell Industries NV (NYSE:LYB)
Heading into the fourth quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LYB over the last 17 quarters. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Glenview Capital, managed by Larry Robbins, holds the largest position in LyondellBasell Industries NV (NYSE:LYB). Glenview Capital has a $158.1 million position in the stock, comprising 1.7% of its 13F portfolio. Sitting at the No. 2 spot is Eric W. Mandelblatt and Gaurav Kapadia of Soroban Capital Partners, with a $134.2 million call position; 1.9% of its 13F portfolio is allocated to the stock. Other peers that hold long positions encompass Cliff Asness's AQR Capital Management, David E. Shaw's D E Shaw and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to LyondellBasell Industries NV (NYSE:LYB), around 4.83% of its portfolio. Soroban Capital Partners is also relatively very bullish on the stock, earmarking 1.89 percent of its 13F equity portfolio to LYB.
Since LyondellBasell Industries NV (NYSE:LYB) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of fund managers who sold off their entire stakes by the end of the third quarter. It's worth mentioning that Robert Henry Lynch's Aristeia Capital dumped the biggest stake of all the hedgies watched by Insider Monkey, totaling close to $226.3 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also said goodbye to its stock, about $57.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 14 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks similar to LyondellBasell Industries NV (NYSE:LYB). We will take a look at Carnival Corporation & Plc (NYSE:CUK), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), Ingersoll-Rand Plc (NYSE:IR), and Paychex, Inc. (NASDAQ:PAYX). All of these stocks' market caps resemble LYB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CUK,11,142543,1 TLK,7,153279,0 IR,40,1724549,0 PAYX,28,871198,-6 Average,21.5,722892,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $723 million. That figure was $502 million in LYB's case. Ingersoll-Rand Plc (NYSE:IR) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 7 bullish hedge fund positions. LyondellBasell Industries NV (NYSE:LYB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 LYB wasn't nearly as popular as these 20 stocks and hedge funds that were betting on LYB were disappointed as the stock returned 4.6% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.