Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
PolyOne Corporation (NYSE:POL) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 15 hedge funds' portfolios at the end of September. At the end of this article we will also compare POL to other stocks including CNO Financial Group Inc (NYSE:CNO), Crescent Point Energy Corp (NYSE:CPG), and CVR Energy, Inc. (NYSE:CVI) to get a better sense of its popularity.
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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's view the latest hedge fund action surrounding PolyOne Corporation (NYSE:POL).
What have hedge funds been doing with PolyOne Corporation (NYSE:POL)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, no change from one quarter earlier. The graph below displays the number of hedge funds with bullish position in POL over the last 13 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in PolyOne Corporation (NYSE:POL), which was worth $28.8 million at the end of the third quarter. On the second spot was Millennium Management which amassed $9.5 million worth of shares. Moreover, Citadel Investment Group, Gotham Asset Management, and Renaissance Technologies were also bullish on PolyOne Corporation (NYSE:POL), allocating a large percentage of their portfolios to this stock.
Since PolyOne Corporation (NYSE:POL) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few funds that elected to cut their entire stakes heading into Q3. Interestingly, Benjamin A. Smith's Laurion Capital Management cut the largest investment of the "upper crust" of funds watched by Insider Monkey, valued at about $0.7 million in stock, and Alec Litowitz and Ross Laser's Magnetar Capital was right behind this move, as the fund said goodbye to about $0.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as PolyOne Corporation (NYSE:POL) but similarly valued. These stocks are CNO Financial Group Inc (NYSE:CNO), Crescent Point Energy Corp (NYSE:CPG), CVR Energy, Inc. (NYSE:CVI), and Performance Food Group Company (NYSE:PFGC). This group of stocks' market valuations resemble POL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNO,14,143832,-3 CPG,12,61886,0 CVI,21,3056087,3 PFGC,23,225495,5 Average,17.5,871825,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $872 million. That figure was $59 million in POL's case. Performance Food Group Company (NYSE:PFGC) is the most popular stock in this table. On the other hand Crescent Point Energy Corp (NYSE:CPG) is the least popular one with only 12 bullish hedge fund positions. PolyOne Corporation (NYSE:POL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard PFGC might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.