Hedge Funds Never Been Less Bullish On LyondellBasell Industries NV (LYB)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of LyondellBasell Industries NV (NYSE:LYB) based on that data and determine whether they were really smart about the stock.

LyondellBasell Industries NV (NYSE:LYB) investors should pay attention to a decrease in hedge fund interest lately. LyondellBasell Industries NV (NYSE:LYB) was in 32 hedge funds’ portfolios at the end of June. The all time high for this statistics is 57. There were 35 hedge funds in our database with LYB holdings at the end of March. Our calculations also showed that LYB 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 leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. 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. Keeping this in mind we’re going to review the recent hedge fund action encompassing LyondellBasell Industries NV (NYSE:LYB).

How have hedgies been trading LyondellBasell Industries NV (NYSE:LYB)?

At second quarter’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. By comparison, 45 hedge funds held shares or bullish call options in LYB a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

More specifically, Eagle Capital Management was the largest shareholder of LyondellBasell Industries NV (NYSE:LYB), with a stake worth $245.8 million reported as of the end of September. Trailing Eagle Capital Management was Arrowstreet Capital, which amassed a stake valued at $76.2 million. AQR Capital Management, Carlson Capital, and Citadel Investment Group 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 Elm Ridge Capital allocated the biggest weight to LyondellBasell Industries NV (NYSE:LYB), around 5.03% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, designating 2.8 percent of its 13F equity portfolio to LYB.

Because LyondellBasell Industries NV (NYSE:LYB) has experienced a decline in interest from the smart money, it’s safe to say that there was a specific group of fund managers who sold off their entire stakes last quarter. Interestingly, Renaissance Technologies cut the largest position of the 750 funds watched by Insider Monkey, worth close to $4.9 million in stock. Andrew Byington’s fund, Appian Way Asset Management, also dumped its stock, about $3.1 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as LyondellBasell Industries NV (NYSE:LYB) but similarly valued. These stocks are Equity Residential (NYSE:EQR), AvalonBay Communities Inc (NYSE:AVB), Tyson Foods, Inc. (NYSE:TSN), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Align Technology, Inc. (NASDAQ:ALGN), and Welltower Inc. (NYSE:WELL). This group of stocks’ market valuations are similar to LYB’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.3 hedge funds with bullish positions and the average amount invested in these stocks was $1221 million. That figure was $510 million in LYB’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 4 bullish hedge fund positions. LyondellBasell Industries NV (NYSE:LYB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LYB is 37.8. 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 gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. A small number of hedge funds were also right about betting on LYB as the stock returned 18.2% since the end of June (through September 14th) and outperformed the market by an even larger margin.

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