Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Celanese Corporation (NYSE:CE)? The smart money sentiment can provide an answer to this question.
Is Celanese Corporation (NYSE:CE) ready to rally soon? The smart money is in a pessimistic mood. The number of long hedge fund bets were trimmed by 5 in recent months. Our calculations also showed that CE isn't among the 30 most popular stocks among hedge funds. CE was in 21 hedge funds' portfolios at the end of the first quarter of 2019. There were 26 hedge funds in our database with CE holdings at the end of the previous quarter.
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
We're going to view the new hedge fund action surrounding Celanese Corporation (NYSE:CE).
How are hedge funds trading Celanese Corporation (NYSE:CE)?
Heading into the second quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in CE a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, GMT Capital, managed by Thomas E. Claugus, holds the biggest position in Celanese Corporation (NYSE:CE). GMT Capital has a $344.7 million position in the stock, comprising 11.4% of its 13F portfolio. Coming in second is AQR Capital Management, led by Cliff Asness, holding a $73.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers that are bullish include Phill Gross and Robert Atchinson's Adage Capital Management, Noam Gottesman's GLG Partners and D. E. Shaw's D E Shaw.
Since Celanese Corporation (NYSE:CE) has experienced falling interest from the aggregate hedge fund industry, we can see that there were a few hedge funds that elected to cut their positions entirely in the third quarter. At the top of the heap, John Overdeck and David Siegel's Two Sigma Advisors dropped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $21.4 million in stock, and Principal Global Investors's Columbus Circle Investors was right behind this move, as the fund dropped about $6.5 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 5 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to Celanese Corporation (NYSE:CE). We will take a look at Martin Marietta Materials, Inc. (NYSE:MLM), TransUnion (NYSE:TRU), Mid America Apartment Communities Inc (NYSE:MAA), and The Liberty SiriusXM Group (NASDAQ:LSXMA). This group of stocks' market values are similar to CE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MLM,36,2138083,2 TRU,29,1570292,1 MAA,21,355779,0 LSXMA,41,1344969,2 Average,31.75,1352281,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $1352 million. That figure was $594 million in CE's case. The Liberty SiriusXM Group (NASDAQ:LSXMA) is the most popular stock in this table. On the other hand Mid America Apartment Communities Inc (NYSE:MAA) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Celanese Corporation (NYSE:CE) is even less popular than MAA. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on CE, though not to the same extent, as the stock returned 0.6% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.