To many investors, hedge funds are perceived as overrated, outdated investment vehicles of an era lost to time. Although there are more than 8,000 hedge funds trading currently, Insider Monkey looks at the elite of this group, about 525 funds. It is assumed that this group oversees the majority of the hedge fund industry's total capital, and by monitoring their best equity investments, we've identified a number of investment strategies that have historically outperformed Mr. Market. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we've began to sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).
Just as necessary, optimistic insider trading activity is another way to analyze the stock market universe. As the old adage goes: there are many incentives for an upper level exec to get rid of shares of his or her company, but only one, very obvious reason why they would behave bullishly. Several empirical studies have demonstrated the market-beating potential of this method if "monkeys" know where to look (learn more here).
Furthermore, we're going to analyze the latest info for OM Group, Inc. (NYSE:OMG).
In preparation for the third quarter, a total of 17 of the hedge funds we track were bullish in this stock, a change of -11% from the previous quarter. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably.
Out of the hedge funds we follow, Chuck Royce's Royce & Associates had the largest position in OM Group, Inc. (NYSE:OMG), worth close to $32.9 million, comprising 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, managed by Jim Simons, which held a $7.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedgies that are bullish include D. E. Shaw's D E Shaw, Israel Englander's Millennium Management and Alexander Mitchell's Scopus Asset Management.
Because OM Group, Inc. (NYSE:OMG) has witnessed a fall in interest from the entirety of the hedge funds we track, logic holds that there were a few money managers who were dropping their entire stakes in Q1. It's worth mentioning that Gilchrist Berg's Water Street Capital sold off the biggest investment of all the hedgies we monitor, valued at close to $7.3 million in stock, and Stephen Loukas, David A. Lorber, Zachary George of FrontFour Capital Group was right behind this move, as the fund said goodbye to about $2.1 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds in Q1.
Bullish insider trading is best served when the company in question has seen transactions within the past 180 days. Over the latest six-month time frame, OM Group, Inc. (NYSE:OMG) has experienced zero unique insiders buying, and zero 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 OM Group, Inc. (NYSE:OMG). These stocks are Koppers Holdings Inc. (NYSE:KOP), WD-40 Company (NASDAQ:WDFC), Flotek Industries Inc (NYSE:FTK), Quaker Chemical Corp (NYSE:KWR), and Kraton Performance Polymers Inc (NYSE:KRA). All of these stocks are in the specialty chemicals industry and their market caps are similar to OMG's market cap.