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Hedge Funds Are Selling Avient Corporation (AVNT)

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 Avient Corporation (NYSE:AVNT) and determine whether hedge funds had an edge regarding this stock.

Is Avient Corporation (NYSE:AVNT) a buy here? The smart money was in a pessimistic mood. The number of bullish hedge fund bets retreated by 6 in recent months. Avient Corporation (NYSE:AVNT) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 28. Our calculations also showed that AVNT 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). There were 28 hedge funds in our database with AVNT holdings at the end of March.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

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 lithium company which could also benefit from the electric car adoption. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s review the key hedge fund action encompassing Avient Corporation (NYSE:AVNT).

What have hedge funds been doing with Avient Corporation (NYSE:AVNT)?

At the end of June, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in AVNT a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Among these funds, Millennium Management held the most valuable stake in Avient Corporation (NYSE:AVNT), which was worth $40.1 million at the end of the third quarter. On the second spot was GMT Capital which amassed $27.5 million worth of shares. AQR Capital Management, D E Shaw, and Scopus Asset 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 Southport Management allocated the biggest weight to Avient Corporation (NYSE:AVNT), around 1.96% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, setting aside 1.55 percent of its 13F equity portfolio to AVNT.

Judging by the fact that Avient Corporation (NYSE:AVNT) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds who sold off their full holdings in the second quarter. Intriguingly, Phill Gross and Robert Atchinson’s Adage Capital Management dropped the largest investment of all the hedgies followed by Insider Monkey, valued at an estimated $11.4 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also cut its stock, about $5.2 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 6 funds in the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Avient Corporation (NYSE:AVNT) but similarly valued. These stocks are Camping World Holdings, Inc. (NYSE:CWH), Federated Hermes, Inc. (NYSE:FHI), Evercore Inc. (NYSE:EVR), Arco Platform Limited (NASDAQ:ARCE), ViaSat, Inc. (NASDAQ:VSAT), Kennametal Inc. (NYSE:KMT), and SailPoint Technologies Holdings, Inc. (NYSE:SAIL). This group of stocks’ market valuations resemble AVNT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CWH 23 341511 7
FHI 30 167797 2
EVR 25 176532 -4
ARCE 25 183602 9
VSAT 23 1006955 2
KMT 10 197490 -7
SAIL 21 491091 0
Average 22.4 366425 1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $366 million. That figure was $193 million in AVNT’s case. Federated Hermes, Inc. (NYSE:FHI) is the most popular stock in this table. On the other hand Kennametal Inc. (NYSE:KMT) is the least popular one with only 10 bullish hedge fund positions. Avient Corporation (NYSE:AVNT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AVNT is 52.6. 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. 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 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately AVNT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AVNT investors were disappointed as the stock returned 1.6% in the third 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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