The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let's look at how this market volatility affected the sentiment of hedge funds towards PolyOne Corporation (NYSE:POL), and what that likely means for the prospects of the company and its stock.
PolyOne Corporation (NYSE:POL) has experienced an increase in hedge fund interest lately. POL was in 19 hedge funds' portfolios at the end of December. There were 15 hedge funds in our database with POL positions at the end of the previous quarter. Our calculations also showed that POL isn't among the 30 most popular stocks among hedge funds.
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 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 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.
We're going to take a peek at the key hedge fund action encompassing PolyOne Corporation (NYSE:POL).
Hedge fund activity in PolyOne Corporation (NYSE:POL)
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in POL over the last 14 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.
The largest stake in PolyOne Corporation (NYSE:POL) was held by AQR Capital Management, which reported holding $19.1 million worth of stock at the end of September. It was followed by Marshall Wace LLP with a $15.7 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Millennium Management.
Now, some big names were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most outsized position in PolyOne Corporation (NYSE:POL). Marshall Wace LLP had $15.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $6.7 million position during the quarter. The other funds with brand new POL positions are Jonathan Barrett and Paul Segal's Luminus Management, Ian Cumming and Joseph Steinberg's Leucadia National, and Matthew Tewksbury's Stevens Capital Management.
Let's also examine hedge fund activity in other stocks similar to PolyOne Corporation (NYSE:POL). We will take a look at Columbia Property Trust Inc (NYSE:CXP), Brady Corp (NYSE:BRC), Argo Group International Holdings, Ltd. (NYSE:ARGO), and International Bancshares Corp (NASDAQ:IBOC). This group of stocks' market caps are closest to POL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CXP,13,57056,0 BRC,20,219969,3 ARGO,13,163795,0 IBOC,19,132694,3 Average,16.25,143379,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $88 million in POL's case. Brady Corp (NYSE:BRC) is the most popular stock in this table. On the other hand Columbia Property Trust Inc (NYSE:CXP) is the least popular one with only 13 bullish hedge fund positions. PolyOne Corporation (NYSE:POL) 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 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. Unfortunately POL wasn't nearly as popular as these 15 stock and hedge funds that were betting on POL were disappointed as the stock returned -1.1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.