Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 9 percentage points since the end of the third quarter of 2018 as investors worried over the possible ramifications of rising interest rates and escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of LyondellBasell Industries NV (NYSE:LYB) and see how the stock is affected by the recent hedge fund activity.
Is LyondellBasell Industries NV (NYSE:LYB) an exceptional investment now? Money managers are getting less bullish. The number of bullish hedge fund bets decreased by 1 in recent months. Our calculations also showed that LYB isn't among the 30 most popular stocks among hedge funds. LYB was in 36 hedge funds' portfolios at the end of March. There were 37 hedge funds in our database with LYB 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.
Let's take a look at the latest hedge fund action regarding LyondellBasell Industries NV (NYSE:LYB).
How have hedgies been trading LyondellBasell Industries NV (NYSE:LYB)?
At Q1's end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the fourth quarter of 2018. By comparison, 36 hedge funds held shares or bullish call options in LYB a year ago. With hedgies' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in LyondellBasell Industries NV (NYSE:LYB) was held by AQR Capital Management, which reported holding $373.9 million worth of stock at the end of March. It was followed by Glenview Capital with a $360.8 million position. Other investors bullish on the company included Arrowstreet Capital, D E Shaw, and Holocene Advisors.
Because LyondellBasell Industries NV (NYSE:LYB) has witnessed falling interest from the aggregate hedge fund industry, it's easy to see that there is a sect of fund managers that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, David Costen Haley's HBK Investments said goodbye to the biggest investment of the 700 funds monitored by Insider Monkey, totaling close to $9.1 million in stock, and Lee Ainslie's Maverick Capital was right behind this move, as the fund dropped about $3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as LyondellBasell Industries NV (NYSE:LYB) but similarly valued. These stocks are Welltower Inc. (NYSE:WELL), General Mills, Inc. (NYSE:GIS), Dollar General Corp. (NYSE:DG), and Southern Copper Corporation (NYSE:SCCO). This group of stocks' market caps are closest to LYB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WELL,23,810807,6 GIS,32,511389,-5 DG,31,1121114,1 SCCO,13,235031,-2 Average,24.75,669585,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $670 million. That figure was $1695 million in LYB's case. General Mills, Inc. (NYSE:GIS) is the most popular stock in this table. On the other hand Southern Copper Corporation (NYSE:SCCO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks LyondellBasell Industries NV (NYSE:LYB) is more popular among hedge funds. 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. 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 -7.9% during the same period 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.