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LyondellBasell Industries NV (LYB): Hedge Funds Caught Wrong Footed

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards LyondellBasell Industries NV (NYSE:LYB).

LyondellBasell Industries NV (NYSE:LYB) was in 40 hedge funds’ portfolios at the end of the fourth quarter of 2019. LYB shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. There were 34 hedge funds in our database with LYB positions at the end of the previous quarter. Our calculations also showed that LYB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GLENVIEW CAPITAL

Larry Robbins of Glenview Capital

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the new hedge fund action regarding LyondellBasell Industries NV (NYSE:LYB).

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

Heading into the first quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. By comparison, 37 hedge funds held shares or bullish call options in LYB a year ago. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in LyondellBasell Industries NV (NYSE:LYB) was held by AQR Capital Management, which reported holding $170.7 million worth of stock at the end of September. It was followed by Soroban Capital Partners with a $141.7 million position. Other investors bullish on the company included Glenview Capital, Gotham Asset Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Appian Way Asset Management allocated the biggest weight to LyondellBasell Industries NV (NYSE:LYB), around 6.74% of its 13F portfolio. Elm Ridge Capital is also relatively very bullish on the stock, earmarking 4.34 percent of its 13F equity portfolio to LYB.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Gotham Asset Management, managed by Joel Greenblatt, initiated the biggest position in LyondellBasell Industries NV (NYSE:LYB). Gotham Asset Management had $20.4 million invested in the company at the end of the quarter. Andrew Byington’s Appian Way Asset Management also made a $12.9 million investment in the stock during the quarter. The following funds were also among the new LYB investors: Renaissance Technologies, Clint Murray’s Lodge Hill Capital, and Anand Parekh’s Alyeska Investment Group.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as LyondellBasell Industries NV (NYSE:LYB) but similarly valued. These stocks are Johnson Controls International plc (NYSE:JCI), Electronic Arts Inc. (NASDAQ:EA), Hilton Worldwide Holdings Inc (NYSE:HLT), and ONEOK, Inc. (NYSE:OKE). This group of stocks’ market values match LYB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JCI 37 1119829 13
EA 68 2359890 -2
HLT 57 4450016 4
OKE 31 223513 5
Average 48.25 2038312 5

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.25 hedge funds with bullish positions and the average amount invested in these stocks was $2038 million. That figure was $377 million in LYB’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand ONEOK, Inc. (NYSE:OKE) is the least popular one with only 31 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. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately LYB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LYB investors were disappointed as the stock returned -62.5% during the same time 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 most of these stocks already outperformed the market in Q1.

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

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