Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Is The Chemours Company (NYSE:CC) a buy here? Money managers are buying. The number of bullish hedge fund positions advanced by 2 in recent months. Our calculations also showed that CC isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Let’s take a peek at the new hedge fund action encompassing The Chemours Company (NYSE:CC).
What have hedge funds been doing with The Chemours Company (NYSE:CC)?
Heading into the second quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in CC a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Third Point held the most valuable stake in The Chemours Company (NYSE:CC), which was worth $74.3 million at the end of the first quarter. On the second spot was Gotham Asset Management which amassed $49.3 million worth of shares. Moreover, Adage Capital Management, D E Shaw, and Luminus Management were also bullish on The Chemours Company (NYSE:CC), allocating a large percentage of their portfolios to this stock.
Now, some big names were breaking ground themselves. Third Point, managed by Dan Loeb, assembled the largest position in The Chemours Company (NYSE:CC). Third Point had $74.3 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also made a $13.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Alexander Mitchell’s Scopus Asset Management, and Cliff Asness’s AQR Capital Management.
Let’s go over hedge fund activity in other stocks similar to The Chemours Company (NYSE:CC). We will take a look at Sonoco Products Company (NYSE:SON), Cullen/Frost Bankers, Inc. (NYSE:CFR), The Macerich Company (NYSE:MAC), and Parsley Energy Inc (NYSE:PE). All of these stocks’ market caps resemble CC’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $331 million. That figure was $297 million in CC’s case. Parsley Energy Inc (NYSE:PE) is the most popular stock in this table. On the other hand Sonoco Products Company (NYSE:SON) is the least popular one with only 17 bullish hedge fund positions. The Chemours Company (NYSE:CC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CC were disappointed as the stock returned -39.6% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.