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Were Hedge Funds Right About Selling The Chemours Company (CC)?

Is The Chemours Company (NYSE:CC) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

The Chemours Company (NYSE:CC) was in 28 hedge funds’ portfolios at the end of the second quarter of 2019. CC shareholders have witnessed a decrease in hedge fund interest recently. There were 30 hedge funds in our database with CC holdings at the end of the previous quarter. Our calculations also showed that CC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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.

GREENLIGHT CAPITAL

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 view the fresh hedge fund action regarding The Chemours Company (NYSE:CC).

What have hedge funds been doing with The Chemours Company (NYSE:CC)?

At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the first quarter of 2019. By comparison, 31 hedge funds held shares or bullish call options in CC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CC Positions

More specifically, Third Point was the largest shareholder of The Chemours Company (NYSE:CC), with a stake worth $105 million reported as of the end of March. Trailing Third Point was Greenlight Capital, which amassed a stake valued at $89.3 million. Sessa Capital, Point72 Asset Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Since The Chemours Company (NYSE:CC) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of money managers who were dropping their positions entirely by the end of the second quarter. Interestingly, Joel Greenblatt’s Gotham Asset Management dumped the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $49.3 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund said goodbye to about $30.4 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks similar to The Chemours Company (NYSE:CC). These stocks are Silgan Holdings Inc. (NASDAQ:SLGN), Two Harbors Investment Corp (NYSE:TWO), Qualys Inc (NASDAQ:QLYS), and Associated Banc-Corp (NYSE:ASB). 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
SLGN 18 210598 3
TWO 13 41880 -5
QLYS 17 134679 3
ASB 19 204043 3
Average 16.75 147800 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $148 million. That figure was $359 million in CC’s case. Associated Banc-Corp (NYSE:ASB) is the most popular stock in this table. On the other hand Two Harbors Investment Corp (NYSE:TWO) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks The Chemours Company (NYSE:CC) is more popular among hedge funds. 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 CC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CC were disappointed as the stock returned -36.4% 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 in Q3.

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

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