The market has been volatile in the fourth quarter as the Federal Reserve continued its rate hikes to normalize the interest rates. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, and the funds' movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of Israel Chemicals Ltd. (NYSE:ICL) and find out how it is affected by hedge funds' moves.
Israel Chemicals Ltd. (NYSE:ICL) shareholders have witnessed a decrease in hedge fund interest in recent months. Our calculations also showed that ICL isn't among the 30 most popular stocks among hedge funds. It seems like hedge funds don't think ICL is a good stock to buy.
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' 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.
Let's take a look at the recent hedge fund action regarding Israel Chemicals Ltd. (NYSE:ICL).
How are hedge funds trading Israel Chemicals Ltd. (NYSE:ICL)?
At Q4's end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -38% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ICL over the last 14 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in Israel Chemicals Ltd. (NYSE:ICL) was held by Arrowstreet Capital, which reported holding $48.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $4 million position. Other investors bullish on the company included Millennium Management, Two Sigma Advisors, and D E Shaw.
Due to the fact that Israel Chemicals Ltd. (NYSE:ICL) has faced a decline in interest from the smart money, we can see that there is a sect of funds who were dropping their positions entirely heading into Q3. It's worth mentioning that Ken Griffin's Citadel Investment Group cut the biggest investment of all the hedgies monitored by Insider Monkey, totaling an estimated $0.2 million in stock, and Nick Thakore's Diametric Capital was right behind this move, as the fund cut about $0.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q3.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Israel Chemicals Ltd. (NYSE:ICL) but similarly valued. These stocks are XPO Logistics Inc (NYSE:XPO), BorgWarner Inc. (NYSE:BWA), Tyler Technologies, Inc. (NYSE:TYL), and Micro Focus Intl PLC (NYSE:MFGP). This group of stocks' market valuations are closest to ICL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XPO,44,2449139,0 BWA,22,579935,0 TYL,24,714336,2 MFGP,8,9232,-2 Average,24.5,938161,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $938 million. That figure was $53 million in ICL's case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand Micro Focus Intl PLC (NYSE:MFGP) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Israel Chemicals Ltd. (NYSE:ICL) is even less popular than MFGP. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately ICL wasn't in this group. Hedge funds that bet on ICL were disappointed as the stock lost 3.5% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.