We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards The Chemours Company (NYSE:CC) and determine whether hedge funds skillfully traded this stock.
The Chemours Company (NYSE:CC) investors should pay attention to an increase in enthusiasm from smart money lately. The Chemours Company (NYSE:CC) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 44. Our calculations also showed that CC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s review the new hedge fund action surrounding The Chemours Company (NYSE:CC).
How are hedge funds trading The Chemours Company (NYSE:CC)?
At second quarter’s end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in CC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Sessa Capital held the most valuable stake in The Chemours Company (NYSE:CC), which was worth $166.1 million at the end of the third quarter. On the second spot was Miller Value Partners which amassed $62.7 million worth of shares. Greenlight Capital, Arrowstreet Capital, and Two Sigma Advisors 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 Sessa Capital allocated the biggest weight to The Chemours Company (NYSE:CC), around 16.69% of its 13F portfolio. Greenlight Capital is also relatively very bullish on the stock, setting aside 5.65 percent of its 13F equity portfolio to CC.
With a general bullishness amongst the heavyweights, key money managers have jumped into The Chemours Company (NYSE:CC) headfirst. Portolan Capital Management, managed by George McCabe, created the most outsized position in The Chemours Company (NYSE:CC). Portolan Capital Management had $6 million invested in the company at the end of the quarter. Travis Cocke’s Voss Capital also made a $3.5 million investment in the stock during the quarter. The other funds with brand new CC positions are Donald Sussman’s Paloma Partners, Paul Tudor Jones’s Tudor Investment Corp, and Noam Gottesman’s GLG Partners.
Let’s also examine hedge fund activity in other stocks similar to The Chemours Company (NYSE:CC). We will take a look at Casella Waste Systems Inc. (NASDAQ:CWST), eHealth, Inc. (NASDAQ:EHTH), Wintrust Financial Corporation (NASDAQ:WTFC), Trinity Industries, Inc. (NYSE:TRN), Insperity Inc (NYSE:NSP), Taylor Morrison Home Corp (NYSE:TMHC), and UMB Financial Corporation (NASDAQ:UMBF). This group of stocks’ market valuations are similar to CC’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $317 million. That figure was $389 million in CC’s case. Taylor Morrison Home Corp (NYSE:TMHC) is the most popular stock in this table. On the other hand UMB Financial Corporation (NASDAQ:UMBF) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks The Chemours Company (NYSE:CC) is more popular among hedge funds. Our overall hedge fund sentiment score for CC is 81.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on CC as the stock returned 36.2% since the end of June 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.