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Is Orion Engineered Carbons SA (OEC) Going to Burn These Hedge Funds?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Orion Engineered Carbons SA (NYSE:OEC) to find out whether it was one of their high conviction long-term ideas.

Is Orion Engineered Carbons SA (NYSE:OEC) ready to rally soon? Investors who are in the know are in a bullish mood. The number of bullish hedge fund bets moved up by 1 recently. Our calculations also showed that OEC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). OEC was in 18 hedge funds’ portfolios at the end of September. There were 17 hedge funds in our database with OEC holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the latest hedge fund action regarding Orion Engineered Carbons SA (NYSE:OEC).

What does smart money think about Orion Engineered Carbons SA (NYSE:OEC)?

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in OEC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the biggest position in Orion Engineered Carbons SA (NYSE:OEC). Renaissance Technologies has a $70.1 million position in the stock, comprising 0.1% of its 13F portfolio. On Renaissance Technologies’s heels is Robert Rodriguez and Steven Romick of First Pacific Advisors, with a $43.6 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism contain Israel Englander’s Millennium Management, Tony Davis’s Inherent Group and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Inherent Group allocated the biggest weight to Orion Engineered Carbons SA (NYSE:OEC), around 22.43% of its 13F portfolio. Harvey Partners is also relatively very bullish on the stock, setting aside 7.02 percent of its 13F equity portfolio to OEC.

As one would reasonably expect, specific money managers have been driving this bullishness. ExodusPoint Capital, managed by Michael Gelband, created the biggest position in Orion Engineered Carbons SA (NYSE:OEC). ExodusPoint Capital had $1 million invested in the company at the end of the quarter. Hoon Kim’s Quantinno Capital also initiated a $0.8 million position during the quarter. The other funds with brand new OEC positions are Ken Griffin’s Citadel Investment Group, Cliff Asness’s AQR Capital Management, and Donald Sussman’s Paloma Partners.

Let’s go over hedge fund activity in other stocks similar to Orion Engineered Carbons SA (NYSE:OEC). These stocks are Funko, Inc. (NASDAQ:FNKO), Warrior Met Coal, Inc. (NYSE:HCC), Silk Road Medical, Inc. (NASDAQ:SILK), and Lindsay Corporation (NYSE:LNN). All of these stocks’ market caps resemble OEC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FNKO 23 97803 6
HCC 27 233578 -4
SILK 7 52706 -4
LNN 8 193429 2
Average 16.25 144379 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $209 million in OEC’s case. Warrior Met Coal, Inc. (NYSE:HCC) is the most popular stock in this table. On the other hand Silk Road Medical, Inc. (NASDAQ:SILK) is the least popular one with only 7 bullish hedge fund positions. Orion Engineered Carbons SA (NYSE:OEC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on OEC, though not to the same extent, as the stock returned 8.8% during the first two months of the fourth quarter and outperformed the market as well.

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

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