Hedge Funds Are Selling PQ Group Holdings Inc. (PQG)

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about PQ Group Holdings Inc. (NYSE:PQG) in this article.

Is PQ Group Holdings Inc. (NYSE:PQG) the right pick for your portfolio? Investors who are in the know are becoming less confident. The number of long hedge fund bets decreased by 4 lately. Our calculations also showed that PQG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). PQG was in 4 hedge funds’ portfolios at the end of December. There were 8 hedge funds in our database with PQG holdings at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 41 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the fresh hedge fund action encompassing PQ Group Holdings Inc. (NYSE:PQG).

Hedge fund activity in PQ Group Holdings Inc. (NYSE:PQG)

At Q4’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -50% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PQG over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Zimmer Partners, managed by Stuart J. Zimmer, holds the largest position in PQ Group Holdings Inc. (NYSE:PQG). Zimmer Partners has a $51.8 million position in the stock, comprising 0.7% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, founded by Jim Simons, holding a $3.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions encompass Ken Griffin’s Citadel Investment Group, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital and . In terms of the portfolio weights assigned to each position Zimmer Partners allocated the biggest weight to PQ Group Holdings Inc. (NYSE:PQG), around 0.72% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.0024 percent of its 13F equity portfolio to PQG.

Since PQ Group Holdings Inc. (NYSE:PQG) has experienced a decline in interest from the smart money, it’s easy to see that there lies a certain “tier” of money managers that slashed their entire stakes heading into Q4. It’s worth mentioning that David Harding’s Winton Capital Management sold off the biggest stake of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $0.5 million in stock. Minhua Zhang’s fund, Weld Capital Management, also sold off its stock, about $0.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 4 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to PQ Group Holdings Inc. (NYSE:PQG). These stocks are Mednax Inc. (NYSE:MD), Korn Ferry (NYSE:KFY), Meritage Homes Corp (NYSE:MTH), and Altra Industrial Motion Corp. (NASDAQ:AIMC). This group of stocks’ market valuations are closest to PQG’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $280 million. That figure was $56 million in PQG’s case. Mednax Inc. (NYSE:MD) is the most popular stock in this table. On the other hand Altra Industrial Motion Corp. (NASDAQ:AIMC) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks PQ Group Holdings Inc. (NYSE:PQG) is even less popular than AIMC. Hedge funds dodged a bullet by taking a bearish stance towards PQG. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately PQG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PQG investors were disappointed as the stock returned -35.7% during the same time period 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 most of these stocks already outperformed the market so far in 2020.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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