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Hedge Funds Are Warming Up To PQ Group Holdings Inc. (PQG)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards PQ Group Holdings Inc. (NYSE:PQG).

PQ Group Holdings Inc. (NYSE:PQG) shareholders have witnessed an increase in activity from the world’s largest hedge funds recently. PQG was in 7 hedge funds’ portfolios at the end of the first quarter of 2020. There were 4 hedge funds in our database with PQG holdings at the end of the previous quarter. Our calculations also showed that PQG 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.

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 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. 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.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

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 stocks recommended/scorned by legendary Bill Miller. 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. Now let’s analyze the latest hedge fund action encompassing PQ Group Holdings Inc. (NYSE:PQG).

What have hedge funds been doing with PQ Group Holdings Inc. (NYSE:PQG)?

Heading into the second quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 75% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in PQG a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Zimmer Partners held the most valuable stake in PQ Group Holdings Inc. (NYSE:PQG), which was worth $33.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $1.5 million worth of shares. Arrowstreet Capital, Citadel Investment Group, and D E Shaw 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 Zimmer Partners allocated the biggest weight to PQ Group Holdings Inc. (NYSE:PQG), around 0.73% of its 13F portfolio. Marshall Wace LLP is also relatively very bullish on the stock, dishing out 0.0029 percent of its 13F equity portfolio to PQG.

Now, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in PQ Group Holdings Inc. (NYSE:PQG). Arrowstreet Capital had $0.7 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $0.3 million investment in the stock during the quarter. The only other fund with a new position in the stock is Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s also examine hedge fund activity in other stocks similar to PQ Group Holdings Inc. (NYSE:PQG). We will take a look at Trustmark Corp (NASDAQ:TRMK), Onto Innovation Inc. (NYSE:ONTO), Moelis & Company (NYSE:MC), and Penn National Gaming, Inc (NASDAQ:PENN). This group of stocks’ market values are similar to PQG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRMK 13 11558 -3
ONTO 11 123006 -3
MC 10 37457 -3
PENN 18 73094 -9
Average 13 61279 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $36 million in PQG’s case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand Moelis & Company (NYSE:MC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks PQ Group Holdings Inc. (NYSE:PQG) is even less popular than MC. Hedge funds dodged a bullet by taking a bearish stance towards PQG. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately PQG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); PQG investors were disappointed as the stock returned 23.8% during the second quarter (through June 10th) 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 so far in 2020.

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