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Did Hedge Funds Make The Right Call On Orion Engineered Carbons SA (OEC) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Orion Engineered Carbons SA (NYSE:OEC) based on that data and determine whether they were really smart about the stock.

Orion Engineered Carbons SA (NYSE:OEC) has experienced an increase in enthusiasm from smart money lately. OEC was in 21 hedge funds’ portfolios at the end of March. There were 18 hedge funds in our database with OEC holdings at the end of the previous quarter. Our calculations also showed that OEC 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus 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 let’s take a glance at the new hedge fund action encompassing Orion Engineered Carbons SA (NYSE:OEC).

What have hedge funds been doing with Orion Engineered Carbons SA (NYSE:OEC)?

Heading into the second quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in OEC over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Orion Engineered Carbons SA (NYSE:OEC), which was worth $31.1 million at the end of the third quarter. On the second spot was First Pacific Advisors LLC which amassed $26.5 million worth of shares. Inherent Group, Luminus Management, and Millennium 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 Inherent Group allocated the biggest weight to Orion Engineered Carbons SA (NYSE:OEC), around 13.19% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, setting aside 2.79 percent of its 13F equity portfolio to OEC.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Luminus Management, managed by Jonathan Barrett and Paul Segal, created the biggest position in Orion Engineered Carbons SA (NYSE:OEC). Luminus Management had $7.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $2 million position during the quarter. The following funds were also among the new OEC investors: Ken Griffin’s Citadel Investment Group, Greg Eisner’s Engineers Gate Manager, and Robert Vincent McHugh’s Jade Capital Advisors.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Orion Engineered Carbons SA (NYSE:OEC) but similarly valued. These stocks are GTT Communications Inc (NYSE:GTT), BioXcel Therapeutics, Inc. (NASDAQ:BTAI), Urstadt Biddle Properties Inc. (NYSE:UBP), and SurModics, Inc. (NASDAQ:SRDX). This group of stocks’ market valuations are similar to OEC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GTT 10 145022 -8
BTAI 10 35609 7
UBP 1 979 0
SRDX 12 120004 -5
Average 8.25 75404 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $105 million in OEC’s case. SurModics, Inc. (NASDAQ:SRDX) is the most popular stock in this table. On the other hand Urstadt Biddle Properties Inc. (NYSE:UBP) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Orion Engineered Carbons SA (NYSE:OEC) is more popular among hedge funds. 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 returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on OEC as the stock returned 43.6% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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