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Hedge Funds Are Dumping Celanese Corporation (CE)

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Celanese Corporation (NYSE:CE).

Celanese Corporation (NYSE:CE) investors should pay attention to a decrease in support from the world’s most elite money managers of late. Our calculations also showed that CE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the fresh hedge fund action regarding Celanese Corporation (NYSE:CE).

What have hedge funds been doing with Celanese Corporation (NYSE:CE)?

Heading into the fourth quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2019. By comparison, 32 hedge funds held shares or bullish call options in CE a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in Celanese Corporation (NYSE:CE) was held by GMT Capital, which reported holding $389.8 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $385.9 million position. Other investors bullish on the company included AQR Capital Management, Holocene Advisors, and GLG Partners. In terms of the portfolio weights assigned to each position GMT Capital allocated the biggest weight to Celanese Corporation (NYSE:CE), around 14.38% of its 13F portfolio. Lyrical Asset Management is also relatively very bullish on the stock, designating 5.81 percent of its 13F equity portfolio to CE.

Since Celanese Corporation (NYSE:CE) has faced a decline in interest from the smart money, logic holds that there were a few money managers that slashed their positions entirely last quarter. Interestingly, Alexander Mitchell’s Scopus Asset Management said goodbye to the largest stake of all the hedgies followed by Insider Monkey, totaling an estimated $23.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also sold off its stock, about $13.7 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Celanese Corporation (NYSE:CE). These stocks are ViacomCBS Inc. (NYSE:CBS), POSCO (NYSE:PKX), Plains All American Pipeline, L.P. (NYSE:PAA), and Extra Space Storage, Inc. (NYSE:EXR). This group of stocks’ market caps match CE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBS 49 1742539 -1
PKX 9 46468 -3
PAA 15 127854 4
EXR 27 328929 7
Average 25 561448 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $561 million. That figure was $945 million in CE’s case. ViacomCBS Inc. (NYSE:CBS) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 9 bullish hedge fund positions. Celanese Corporation (NYSE:CE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CE investors were disappointed as the stock returned 3.2% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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