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Amid an overall bull market, many stocks that smart money investors were collectively bullish on 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. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Trinseo S.A. (NYSE:TSE) a buy here? Prominent investors are in a pessimistic mood. The number of bullish hedge fund positions shrunk by 10 lately. Our calculations also showed that TSE 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.
According to most shareholders, hedge funds are assumed to be underperforming, old financial vehicles of yesteryear. While there are over 8000 funds in operation today, We hone in on the upper echelon of this club, approximately 750 funds. It is estimated that this group of investors manage the majority of all hedge funds' total asset base, and by tailing their top stock picks, Insider Monkey has spotted a few investment strategies that have historically outstripped the market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
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Noam Gottesman of GLG Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the key hedge fund action encompassing Trinseo S.A. (NYSE:TSE).
What does smart money think about Trinseo S.A. (NYSE:TSE)?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -43% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in TSE over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the number one position in Trinseo S.A. (NYSE:TSE), worth close to $43.9 million, amounting to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Noam Gottesman of GLG Partners, with a $12 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism comprise David E. Shaw's D E Shaw, John Overdeck and David Siegel's Two Sigma Advisors and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Proxima Capital Management allocated the biggest weight to Trinseo S.A. (NYSE:TSE), around 2.97% of its 13F portfolio. Bailard Inc is also relatively very bullish on the stock, setting aside 0.08 percent of its 13F equity portfolio to TSE.
Seeing as Trinseo S.A. (NYSE:TSE) has faced bearish sentiment from the smart money, we can see that there is a sect of fund managers who were dropping their full holdings heading into Q4. Interestingly, Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital said goodbye to the biggest position of the "upper crust" of funds followed by Insider Monkey, valued at about $4.7 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dropped its stock, about $4.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 10 funds heading into Q4.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Trinseo S.A. (NYSE:TSE) but similarly valued. These stocks are Bottomline Technologies (de), Inc. (NASDAQ:EPAY), FGL Holdings (NYSE:FG), Patterson-UTI Energy, Inc. (NASDAQ:PTEN), and Walker & Dunlop Inc. (NYSE:WD). This group of stocks' market valuations match TSE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EPAY,19,85411,3 FG,23,175870,-1 PTEN,26,251357,1 WD,15,72221,0 Average,20.75,146215,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $146 million. That figure was $85 million in TSE's case. Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is the most popular stock in this table. On the other hand Walker & Dunlop Inc. (NYSE:WD) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Trinseo S.A. (NYSE:TSE) is even less popular than WD. Hedge funds dodged a bullet by taking a bearish stance towards TSE. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TSE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TSE investors were disappointed as the stock returned -10.6% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.