We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like PQ Group Holdings Inc. (NYSE:PQG).
PQ Group Holdings Inc. (NYSE:PQG) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds' portfolios at the end of the second quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Alliance Resource Partners, L.P. (NASDAQ:ARLP), Fanhua Inc. (NASDAQ:FANH), and Urban Outfitters, Inc. (NASDAQ:URBN) to gather more data points. Our calculations also showed that PQG isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a gander at the new hedge fund action encompassing PQ Group Holdings Inc. (NYSE:PQG).
How have hedgies been trading PQ Group Holdings Inc. (NYSE:PQG)?
At the end of the second quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in PQG a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Zimmer Partners was the largest shareholder of PQ Group Holdings Inc. (NYSE:PQG), with a stake worth $52.3 million reported as of the end of March. Trailing Zimmer Partners was Renaissance Technologies, which amassed a stake valued at $1.7 million. Citadel Investment Group, Millennium Management, and Winton Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Encompass Capital Advisors. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as PQ Group Holdings Inc. (NYSE:PQG) but similarly valued. These stocks are Alliance Resource Partners, L.P. (NASDAQ:ARLP), Fanhua Inc. (NASDAQ:FANH), Urban Outfitters, Inc. (NASDAQ:URBN), and Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN). All of these stocks' market caps resemble PQG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARLP,9,102943,1 FANH,9,28504,-1 URBN,21,206534,-4 BHVN,38,493841,5 Average,19.25,207956,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $56 million in PQG's case. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is the most popular stock in this table. On the other hand Alliance Resource Partners, L.P. (NASDAQ:ARLP) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks PQ Group Holdings Inc. (NYSE:PQG) is even less popular than ARLP. Hedge funds dodged a bullet by taking a bearish stance towards PQG. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PQG wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PQG investors were disappointed as the stock returned 0.6% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.