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Did Hedge Funds Make The Right Call On Celanese Corporation (CE) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtCelanese Corporation (NYSE:CE) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Celanese Corporation (NYSE:CE) was in 29 hedge funds’ portfolios at the end of March. CE shareholders have witnessed a decrease in support from the world’s most elite money managers recently. There were 31 hedge funds in our database with CE positions at the end of the previous quarter. Our calculations also showed that CE 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.

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 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 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 stocks that are in our short portfolio.

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the fresh hedge fund action encompassing Celanese Corporation (NYSE:CE).

What have hedge funds been doing with Celanese Corporation (NYSE:CE)?

Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in CE a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is CE A Good Stock To Buy?

More specifically, Lyrical Asset Management was the largest shareholder of Celanese Corporation (NYSE:CE), with a stake worth $207.6 million reported as of the end of September. Trailing Lyrical Asset Management was GMT Capital, which amassed a stake valued at $188.7 million. AQR Capital Management, GLG Partners, and Gotham Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position GMT Capital allocated the biggest weight to Celanese Corporation (NYSE:CE), around 10.59% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, dishing out 5.1 percent of its 13F equity portfolio to CE.

Due to the fact that Celanese Corporation (NYSE:CE) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there exists a select few fund managers that slashed their entire stakes last quarter. Interestingly, Steve Cohen’s Point72 Asset Management dumped the biggest position of the 750 funds monitored by Insider Monkey, worth about $23.9 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also said goodbye to its stock, about $3.5 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Celanese Corporation (NYSE:CE). These stocks are Black Knight, Inc. (NYSE:BKI), Cypress Semiconductor Corporation (NASDAQ:CY), C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), and Principal Financial Group Inc (NYSE:PFG). This group of stocks’ market valuations match CE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BKI 32 372352 1
CY 46 2083415 10
CHRW 32 247903 8
PFG 27 118834 7
Average 34.25 705626 6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $706 million. That figure was $509 million in CE’s case. Cypress Semiconductor Corporation (NASDAQ:CY) is the most popular stock in this table. On the other hand Principal Financial Group Inc (NYSE:PFG) is the least popular one with only 27 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately CE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CE investors were disappointed as the stock returned 18.6% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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