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Is Chemtura Corp (CHMT) Going to Burn These Hedge Funds?

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In the eyes of many of your peers, hedge funds are seen as useless, outdated financial vehicles of a period lost to current times. Although there are In excess of 8,000 hedge funds in operation currently, Insider Monkey looks at the leaders of this group, close to 525 funds. It is widely held that this group has its hands on most of the smart money’s total assets, and by paying attention to their best equity investments, we’ve figured out a few investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per 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 trumped the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).

Equally as useful, optimistic insider trading activity is a second way to analyze the stock market universe. Obviously, there are a number of stimuli for an insider to sell shares of his or her company, but only one, very clear reason why they would buy. Plenty of academic studies have demonstrated the useful potential of this method if “monkeys” understand where to look (learn more here).

Keeping this in mind, we’re going to analyze the recent info about Chemtura Corp (NYSE:CHMT).

How are hedge funds trading Chemtura Corp (NYSE:CHMT)?

Heading into Q3, a total of 21 of the hedge funds we track were long in this stock, a change of -22% from one quarter earlier. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings meaningfully.

Chemtura Corp (NYSE:CHMT)When using filings from the hedgies we track, James Dinan’s York Capital Management had the biggest position in Chemtura Corp (NYSE:CHMT), worth close to $115.6 million, comprising 2.4% of its total 13F portfolio. Sitting at the No. 2 spot is Gilchrist Berg of Water Street Capital, with a $81.1 million position; the fund has 2.6% of its 13F portfolio invested in the stock. Other hedge funds that are bullish include David Gallo’s Valinor Management LLC, Steven Cohen’s SAC Capital Advisors and D. E. Shaw’s D E Shaw.

Judging by the fact that Chemtura Corp (NYSE:CHMT) has experienced a fall in interest from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds that elected to cut their entire stakes in Q1. At the top of the heap, Douglas Hirsch’s Seneca Capital cut the biggest position of all the hedgies we monitor, comprising about $8.3 million in stock. Phill Gross and Robert Atchinson’s fund, Adage Capital Management, also sold off its stock, about $2.2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 6 funds in Q1.

How have insiders been trading Chemtura Corp (NYSE:CHMT)?

Legal insider trading, particularly when it’s bullish, is particularly usable when the company in focus has experienced transactions within the past six months. Over the last 180-day time frame, Chemtura Corp (NYSE:CHMT) has experienced zero unique insiders purchasing, and 1 insider sales (see the details of insider trades here).

We’ll go over the relationship between both of these indicators in other stocks similar to Chemtura Corp (NYSE:CHMT). These stocks are PolyOne Corporation (NYSE:POL), Sensient Technologies Corporation (NYSE:SXT), HB Fuller Co (NYSE:FUL), Olin Corporation (NYSE:OLN), and Cabot Corp (NYSE:CBT). This group of stocks are the members of the specialty chemicals industry and their market caps resemble CHMT’s market cap.

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