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Do Hedge Funds Love Element Solutions Inc. (ESI)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Element Solutions Inc. (NYSE:ESI).

Is Element Solutions Inc. (NYSE:ESI) an exceptional investment now? Money managers are selling. The number of long hedge fund bets were cut by 2 lately. Our calculations also showed that ESI 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.

If you’d ask most stock holders, hedge funds are seen as worthless, outdated financial vehicles of yesteryear. While there are over 8000 funds with their doors open today, Our experts hone in on the top tier of this club, about 850 funds. These investment experts handle bulk of all hedge funds’ total asset base, and by tracking their finest stock picks, Insider Monkey has unsheathed various investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped 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 .

Jeffrey Gates Gates Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the fresh hedge fund action encompassing Element Solutions Inc. (NYSE:ESI).

How have hedgies been trading Element Solutions Inc. (NYSE:ESI)?

At Q1’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in ESI a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is ESI A Good Stock To Buy?

More specifically, Gates Capital Management was the largest shareholder of Element Solutions Inc. (NYSE:ESI), with a stake worth $91.1 million reported as of the end of September. Trailing Gates Capital Management was Elliott Management, which amassed a stake valued at $59 million. Bares Capital Management, Glenview Capital, and MIC Capital Partners 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 Scoggin allocated the biggest weight to Element Solutions Inc. (NYSE:ESI), around 13.85% of its 13F portfolio. MIC Capital Partners is also relatively very bullish on the stock, earmarking 12.35 percent of its 13F equity portfolio to ESI.

Seeing as Element Solutions Inc. (NYSE:ESI) has faced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of money managers that decided to sell off their full holdings in the third quarter. It’s worth mentioning that Javier Velazquez’s Albar Capital dumped the biggest investment of the “upper crust” of funds followed by Insider Monkey, valued at about $15.2 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund dropped about $2.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Element Solutions Inc. (NYSE:ESI) but similarly valued. We will take a look at PotlatchDeltic Corporation (NASDAQ:PCH), John Wiley & Sons Inc (NYSE:JW), Webster Financial Corporation (NYSE:WBS), and Energizer Holdings, Inc. (NYSE:ENR). This group of stocks’ market values are similar to ESI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PCH 16 234507 0
JW 17 55212 -4
WBS 33 223111 9
ENR 21 119723 -1
Average 21.75 158138 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $387 million in ESI’s case. Webster Financial Corporation (NYSE:WBS) is the most popular stock in this table. On the other hand PotlatchDeltic Corporation (NASDAQ:PCH) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Element Solutions Inc. (NYSE:ESI) 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 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on ESI as the stock returned 30.3% so far in Q2 (through the end of May) 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.