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Innospec Inc. (IOSP): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?: Quaker Chemical Corp (KWR), Flotek Industries Inc (FTK)

Innospec Inc. (NASDAQ:IOSP) was in 14 hedge funds’ portfolio at the end of the fourth quarter of 2012. IOSP shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. There were 13 hedge funds in our database with IOSP positions at the end of the previous quarter.

Innospec Inc. (NASDAQ:IOSP)

To most investors, hedge funds are perceived as unimportant, old financial vehicles of yesteryear. While there are more than 8000 funds trading at the moment, we hone in on the leaders of this group, about 450 funds. It is widely believed that this group controls the majority of the smart money’s total capital, and by keeping an eye on their top stock picks, we have unearthed a number of investment strategies that have historically outperformed the broader indices. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 25 percentage points in 6.5 month (explore the details and some picks here).

Just as beneficial, optimistic insider trading activity is another way to break down the investments you’re interested in. As the old adage goes: there are a number of motivations for a bullish insider to drop shares of his or her company, but only one, very simple reason why they would buy. Plenty of academic studies have demonstrated the impressive potential of this method if investors know where to look (learn more here).

With these “truths” under our belt, let’s take a gander at the recent action encompassing Innospec Inc. (NASDAQ:IOSP).

What have hedge funds been doing with Innospec Inc. (NASDAQ:IOSP)?

At the end of the fourth quarter, a total of 14 of the hedge funds we track were bullish in this stock, a change of 8% from the third quarter. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings considerably.

When looking at the hedgies we track, Royce & Associates, managed by Chuck Royce, holds the largest position in Innospec Inc. (NASDAQ:IOSP). Royce & Associates has a $44 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is D. E. Shaw of D E Shaw, with a $17 million position; the fund has 0% of its 13F portfolio invested in the stock. Remaining hedge funds that are bullish include Jeffrey Gendell’s Tontine Asset Management, Alexander Mitchell’s Scopus Asset Management and Cliff Asness’s AQR Capital Management.

As aggregate interest increased, key hedge funds have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, initiated the largest position in Innospec Inc. (NASDAQ:IOSP). Citadel Investment Group had 1 million invested in the company at the end of the quarter. Neil Chriss’s Hutchin Hill Capital also made a $1 million investment in the stock during the quarter. The other funds with brand new IOSP positions are Mike Vranos’s Ellington and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Insider trading activity in Innospec Inc. (NASDAQ:IOSP)

Insider trading activity, especially when it’s bullish, is at its handiest when the company we’re looking at has experienced transactions within the past half-year. Over the latest half-year time period, Innospec Inc. (NASDAQ:IOSP) has experienced zero unique insiders purchasing, and 6 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Innospec Inc. (NASDAQ:IOSP). These stocks are Quaker Chemical Corp (NYSE:KWR), Flotek Industries Inc (NYSE:FTK), WD-40 Company (NASDAQ:WDFC), Innophos Holdings, Inc. (NASDAQ:IPHS), and Koppers Holdings Inc. (NYSE:KOP). All of these stocks are in the specialty chemicals industry and their market caps are closest to IOSP’s market cap.

Company Name # of Hedge Funds # of Insiders Buying # of Insiders Selling
Quaker Chemical Corp (NYSE:KWR) 7 0 6
Flotek Industries Inc (NYSE:FTK) 10 0 2
WD-40 Company (NASDAQ:WDFC) 4 1 4
Innophos Holdings, Inc. (NASDAQ:IPHS) 12 0 5
Koppers Holdings Inc. (NYSE:KOP) 10 0 7

With the returns shown by the aforementioned strategies, retail investors must always watch hedge fund and insider trading activity, and Innospec Inc. (NASDAQ:IOSP) is no exception.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

Insider Monkey’s small-cap strategy returned 37% between September 2012 and March 2013 versus 12.9% for the S&P 500 index. Try it now by clicking the link above.

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