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Did Hedge Funds Make The Right Call On LyondellBasell Industries NV (LYB) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding LyondellBasell Industries NV (NYSE:LYB) and determine whether hedge funds had an edge regarding this stock.

Is LyondellBasell Industries NV (NYSE:LYB) an attractive investment today? The smart money was turning less bullish. The number of bullish hedge fund bets were cut by 5 recently. Our calculations also showed that LYB 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.

In the 21st century investor’s toolkit there are plenty of indicators stock market investors employ to evaluate stocks. A duo of the most useful indicators are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the elite money managers can outclass the broader indices by a solid amount (see the details here).

GLENVIEW CAPITAL

Larry Robbins of Glenview Capital

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. Now we’re going to take a peek at the key hedge fund action encompassing LyondellBasell Industries NV (NYSE:LYB).

How are hedge funds trading LyondellBasell Industries NV (NYSE:LYB)?

At Q1’s end, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in LYB over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is LYB A Good Stock To Buy?

The largest stake in LyondellBasell Industries NV (NYSE:LYB) was held by Eagle Capital Management, which reported holding $178.1 million worth of stock at the end of September. It was followed by AQR Capital Management with a $78.8 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Elm Ridge Capital allocated the biggest weight to LyondellBasell Industries NV (NYSE:LYB), around 5.55% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, dishing out 3.65 percent of its 13F equity portfolio to LYB.

Since LyondellBasell Industries NV (NYSE:LYB) has experienced declining sentiment from hedge fund managers, we can see that there lies a certain “tier” of money managers that elected to cut their full holdings last quarter. Interestingly, Larry Robbins’s Glenview Capital said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, comprising close to $50.1 million in stock. Lee Ainslie’s fund, Maverick Capital, also said goodbye to its stock, about $3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as LyondellBasell Industries NV (NYSE:LYB) but similarly valued. These stocks are AMETEK, Inc. (NYSE:AME), Royal Bank of Scotland Group plc (NYSE:RBS), Palo Alto Networks Inc (NYSE:PANW), and Rogers Communications Inc. (NYSE:RCI). This group of stocks’ market valuations are closest to LYB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AME 33 639873 1
RBS 5 13271 0
PANW 47 2721801 0
RCI 16 237258 3
Average 25.25 903051 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $903 million. That figure was $475 million in LYB’s case. Palo Alto Networks Inc (NYSE:PANW) is the most popular stock in this table. On the other hand Royal Bank of Scotland Group plc (NYSE:RBS) is the least popular one with only 5 bullish hedge fund positions. LyondellBasell Industries NV (NYSE:LYB) is not the most popular stock in this group but hedge fund interest is still above 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on LYB as the stock returned 34.3% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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