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Did Hedge Funds Drop The Ball On Celanese Corporation (CE) ?

The 700+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 28. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Celanese Corporation (NYSE:CE).

Celanese Corporation (NYSE:CE) was in 20 hedge funds’ portfolios at the end of June. CE investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. There were 21 hedge funds in our database with CE holdings at the end of the previous quarter. Our calculations also showed that CE isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

CE_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 view the recent hedge fund action surrounding Celanese Corporation (NYSE:CE).

Hedge fund activity in Celanese Corporation (NYSE:CE)

At Q2’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. On the other hand, there were a total of 33 hedge funds with a bullish position in CE a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

David Harding

According to Insider Monkey’s hedge fund database, Thomas E. Claugus’s GMT Capital has the largest position in Celanese Corporation (NYSE:CE), worth close to $370.2 million, comprising 12.9% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, led by Cliff Asness, holding a $87.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism include Brandon Haley’s Holocene Advisors, Noam Gottesman’s GLG Partners and Alexander Mitchell’s Scopus Asset Management.

Seeing as Celanese Corporation (NYSE:CE) has faced bearish sentiment from the smart money, it’s easy to see that there is a sect of fund managers who were dropping their entire stakes in the second quarter. Intriguingly, Phill Gross and Robert Atchinson’s Adage Capital Management dumped the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling close to $42.9 million in stock. Renaissance Technologies, also sold off its stock, about $21.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Celanese Corporation (NYSE:CE). These stocks are Erie Indemnity Company (NASDAQ:ERIE), Host Hotels and Resorts Inc (NYSE:HST), The J.M. Smucker Company (NYSE:SJM), and Fortinet Inc (NASDAQ:FTNT). This group of stocks’ market values resemble CE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ERIE 12 89460 -5
HST 28 513326 1
SJM 26 486152 0
FTNT 34 1151583 0
Average 25 560130 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $560 million. That figure was $635 million in CE’s case. Fortinet Inc (NASDAQ:FTNT) is the most popular stock in this table. On the other hand Erie Indemnity Company (NASDAQ:ERIE) is the least popular one with only 12 bullish hedge fund positions. Celanese Corporation (NYSE:CE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on CE as the stock returned 14.1% during the same time frame and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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