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Did Hedge Funds Make The Right Call On Trinseo S.A. (TSE) ?

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 Trinseo S.A. (NYSE:TSE) and determine whether hedge funds had an edge regarding this stock.

Is Trinseo S.A. (NYSE:TSE) a marvelous investment right now? Prominent investors were selling. The number of bullish hedge fund positions dropped by 1 in recent months. Our calculations also showed that TSE 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). TSE was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 18 hedge funds in our database with TSE positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

To most traders, hedge funds are viewed as slow, old investment tools of yesteryear. While there are more than 8000 funds with their doors open today, Our experts look at the elite of this club, around 850 funds. Most estimates calculate that this group of people administer bulk of all hedge funds’ total asset base, and by tailing their unrivaled picks, Insider Monkey has spotted numerous investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. Now let’s take a look at the latest hedge fund action surrounding Trinseo S.A. (NYSE:TSE).

Hedge fund activity in Trinseo S.A. (NYSE:TSE)

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in TSE a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Trinseo S.A. (NYSE:TSE), with a stake worth $8.7 million reported as of the end of September. Trailing Renaissance Technologies was Citadel Investment Group, which amassed a stake valued at $3.5 million. Winton Capital Management, Two Sigma Advisors, and D E Shaw 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 Proxima Capital Management allocated the biggest weight to Trinseo S.A. (NYSE:TSE), around 12.43% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.06 percent of its 13F equity portfolio to TSE.

Since Trinseo S.A. (NYSE:TSE) has witnessed falling interest from hedge fund managers, we can see that there exists a select few hedgies who were dropping their positions entirely in the first quarter. Interestingly, Israel Englander’s Millennium Management sold off the largest position of the 750 funds monitored by Insider Monkey, comprising an estimated $8.4 million in stock. Jonathan Soros’s fund, JS Capital, also dropped its stock, about $0.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to Trinseo S.A. (NYSE:TSE). We will take a look at Delphi Technologies PLC (NYSE:DLPH), Sculptor Capital Management, Inc. (NYSE:SCU), Xperi Holding Corporation (NASDAQ:XPER), and Republic Bancorp, Inc. (NASDAQ:RBCAA). This group of stocks’ market caps are similar to TSE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DLPH 19 105634 2
SCU 12 72077 0
XPER 20 108532 -3
RBCAA 5 8845 -3
Average 14 73772 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $26 million in TSE’s case. Xperi Holding Corporation (NASDAQ:XPER) is the most popular stock in this table. On the other hand Republic Bancorp, Inc.(NASDAQ:RBCAA) is the least popular one with only 5 bullish hedge fund positions. Trinseo S.A. (NYSE:TSE) 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on TSE as the stock returned 54.1% since Q1 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.