Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Methanex Corporation (NASDAQ:MEOH) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged and stood at its all time high which was reached at the end of September. This is usually a very bullish indicator. For example hedge fund positions in Xerox jumped to its all time high at the end of December and the stock returned more than 72% in the following 3 months or so. Another example is Trade Desk Inc. Hedge fund sentiment towards the stock was also at its all time high at the beginning of this year and the stock returned more than 81% in 3.5 months. Similarly Xilinx and EEFT returned more than 40% after hedge fund sentiment hit its all time high at the end of December. We observed similar performances from OKTA, Twilio, CCK, MSCI, MASI and Progressive Corporation (PGR); these stocks returned 37%, 37%, 35%, 29%, 28% and 27% respectively. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management (BAM), Atlassian Corporation (TEAM), RCL, MTB, VAR, RNG, FIVE, ECA, SBNY, KL, MLNX and CRH also hit all time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5-3.5 months of this year.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a glance at the key hedge fund action regarding Methanex Corporation (NASDAQ:MEOH).
How have hedgies been trading Methanex Corporation (NASDAQ:MEOH)?
At the end of the fourth quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in MEOH over the last 14 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Methanex Corporation (NASDAQ:MEOH), with a stake worth $128 million reported as of the end of September. Trailing AQR Capital Management was Renaissance Technologies, which amassed a stake valued at $32.9 million. Millennium Management, Arrowstreet Capital, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Methanex Corporation (NASDAQ:MEOH) has faced declining sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of funds that elected to cut their full holdings by the end of the third quarter. Intriguingly, James H. Litinsky's JHL Capital Group dumped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, valued at close to $14.2 million in stock. Steve Cohen's fund, Point72 Asset Management, also dumped its stock, about $2 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Methanex Corporation (NASDAQ:MEOH) but similarly valued. These stocks are Wintrust Financial Corporation (NASDAQ:WTFC), Carter's, Inc. (NYSE:CRI), Coupa Software Incorporated (NASDAQ:COUP), and Amedisys Inc (NASDAQ:AMED). This group of stocks' market valuations are similar to MEOH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WTFC,24,373072,0 CRI,22,275897,-4 COUP,36,980963,-3 AMED,32,236663,12 Average,28.5,466649,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $467 million. That figure was $264 million in MEOH's case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Carter's, Inc. (NYSE:CRI) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Methanex Corporation (NASDAQ:MEOH) is even less popular than CRI though the overall hedge fund sentiment towards the stock is at its all time high. 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 MEOH, though not to the same extent, as the stock returned 23.3% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
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