It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 24.4% during the first 9 months of 2019 and outperformed the S&P 500 ETF by 4 percentage points. We are done processing the latest 13f filings and in this article we will study how hedge fund sentiment towards Ingevity Corporation (NYSE:NGVT) changed during the first quarter.
Is Ingevity Corporation (NYSE:NGVT) an exceptional stock to buy now? Prominent investors are taking a pessimistic view. The number of bullish hedge fund positions shrunk by 2 recently. Our calculations also showed that NGVT isn’t among the 30 most popular stocks among hedge funds (view the video below). NGVT was in 21 hedge funds’ portfolios at the end of June. There were 23 hedge funds in our database with NGVT holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the new hedge fund action surrounding Ingevity Corporation (NYSE:NGVT).
How are hedge funds trading Ingevity Corporation (NYSE:NGVT)?
Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in NGVT a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in Ingevity Corporation (NYSE:NGVT) was held by Chilton Investment Company, which reported holding $77.6 million worth of stock at the end of March. It was followed by Broad Bay Capital with a $27.9 million position. Other investors bullish on the company included Balyasny Asset Management, Adage Capital Management, and Millennium Management.
Since Ingevity Corporation (NYSE:NGVT) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedge funds who sold off their positions entirely by the end of the second quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at close to $4.5 million in stock. Renaissance Technologies, also dropped its stock, about $3.2 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Ingevity Corporation (NYSE:NGVT) but similarly valued. These stocks are Landstar System, Inc. (NASDAQ:LSTR), Rexford Industrial Realty Inc (NYSE:REXR), Spire Inc. (NYSE:SR), and Sinopec Shanghai Petrochemical Co. (NYSE:SHI). This group of stocks’ market valuations match NGVT’s market valuation.
|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 14 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $217 million in NGVT’s case. Landstar System, Inc. (NASDAQ:LSTR) is the most popular stock in this table. On the other hand Sinopec Shanghai Petrochemical Co. (NYSE:SHI) is the least popular one with only 5 bullish hedge fund positions. Ingevity Corporation (NYSE:NGVT) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NGVT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NGVT were disappointed as the stock returned -19.3% during 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.