Did Hedge Funds Drop The Ball On Dumping Huntsman Corporation (HUN) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Huntsman Corporation (NYSE:HUN) and determine whether hedge funds skillfully traded this stock.

Huntsman Corporation (NYSE:HUN) was in 21 hedge funds’ portfolios at the end of March. HUN has seen a decrease in hedge fund sentiment in recent months. There were 39 hedge funds in our database with HUN positions at the end of the previous quarter. Our calculations also showed that HUN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Yacktman of Yacktman Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to go over the recent hedge fund action encompassing Huntsman Corporation (NYSE:HUN).

Hedge fund activity in Huntsman Corporation (NYSE:HUN)

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -46% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in HUN over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in Huntsman Corporation (NYSE:HUN) was held by Yacktman Asset Management, which reported holding $96.7 million worth of stock at the end of September. It was followed by Holocene Advisors with a $56.3 million position. Other investors bullish on the company included Royce & Associates, Citadel Investment Group, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Swift Run Capital Management allocated the biggest weight to Huntsman Corporation (NYSE:HUN), around 6.32% of its 13F portfolio. Cruiser Capital Advisors is also relatively very bullish on the stock, designating 3.35 percent of its 13F equity portfolio to HUN.

Due to the fact that Huntsman Corporation (NYSE:HUN) has faced falling interest from hedge fund managers, it’s safe to say that there exists a select few fund managers that elected to cut their positions entirely in the first quarter. Intriguingly, Israel Englander’s Millennium Management dropped the largest position of all the hedgies tracked by Insider Monkey, comprising an estimated $27.6 million in stock. Steve Cohen’s fund, Point72 Asset Management, also sold off its stock, about $25.5 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 18 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Huntsman Corporation (NYSE:HUN). These stocks are Parsons Corporation (NYSE:PSN), Cemex SAB de CV (NYSE:CX), L Brands Inc (NYSE:LB), and Pure Storage, Inc. (NYSE:PSTG). This group of stocks’ market caps match HUN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PSN 15 93372 5
CX 12 98642 -1
LB 39 919960 -7
PSTG 25 320708 -4
Average 22.75 358171 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $358 million. That figure was $305 million in HUN’s case. L Brands Inc (NYSE:LB) is the most popular stock in this table. On the other hand Cemex SAB de CV (NYSE:CX) is the least popular one with only 12 bullish hedge fund positions. Huntsman Corporation (NYSE:HUN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on HUN as the stock returned 38.7% since the end of March and outperformed the market by an even larger margin.

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