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Were Hedge Funds Right About Selling Ashland Global Holdings Inc.. (ASH)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Ashland Global Holdings Inc.. (NYSE:ASH).

Is Ashland Global Holdings Inc.. (NYSE:ASH) a sound investment today? Hedge funds are getting less bullish. The number of long hedge fund positions went down by 3 lately. Our calculations also showed that ASH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). ASH was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 33 hedge funds in our database with ASH positions at the end of the previous quarter.

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 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 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.

YORK CAPITAL MANAGEMENT

James Dinan of York Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind let’s review the key hedge fund action encompassing Ashland Global Holdings Inc.. (NYSE:ASH).

How have hedgies been trading Ashland Global Holdings Inc.. (NYSE:ASH)?

Heading into the first quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ASH over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

The largest stake in Ashland Global Holdings Inc.. (NYSE:ASH) was held by Eminence Capital, which reported holding $430.6 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $138 million position. Other investors bullish on the company included Cruiser Capital Advisors, Omega Advisors, and York Capital Management. In terms of the portfolio weights assigned to each position Cruiser Capital Advisors allocated the biggest weight to Ashland Global Holdings Inc.. (NYSE:ASH), around 60.43% of its 13F portfolio. One Fin Capital Management is also relatively very bullish on the stock, designating 5.42 percent of its 13F equity portfolio to ASH.

Judging by the fact that Ashland Global Holdings Inc.. (NYSE:ASH) has witnessed a decline in interest from hedge fund managers, logic holds that there exists a select few hedge funds who sold off their positions entirely by the end of the third quarter. Intriguingly, Michael A. Price and Amos Meron’s Empyrean Capital Partners said goodbye to the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising close to $114.4 million in stock. David Harding’s fund, Winton Capital Management, also sold off its stock, about $41.8 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Ashland Global Holdings Inc.. (NYSE:ASH). We will take a look at Flowers Foods, Inc. (NYSE:FLO), Darling Ingredients Inc. (NYSE:DAR), PacWest Bancorp (NASDAQ:PACW), and Chegg Inc (NYSE:CHGG). This group of stocks’ market values match ASH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FLO 20 237755 -11
DAR 16 294979 -11
PACW 31 249581 6
CHGG 39 422147 3
Average 26.5 301116 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $301 million. That figure was $1068 million in ASH’s case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand Darling Ingredients Inc. (NYSE:DAR) is the least popular one with only 16 bullish hedge fund positions. Ashland Global Holdings Inc.. (NYSE:ASH) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately ASH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ASH were disappointed as the stock returned -38.6% 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 many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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