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Should You Avoid Vale SA (ADR) (VALE)?

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Is Vale SA (ADR) (NYSE:VALE) a healthy stock for your portfolio? Prominent investors are becoming less hopeful. The number of bullish hedge fund bets shrunk by 6 in recent months.

To most shareholders, hedge funds are seen as worthless, old investment tools of yesteryear. While there are greater than 8000 funds with their doors open today, we at Insider Monkey choose to focus on the top tier of this group, about 450 funds. It is widely believed that this group has its hands on most of the hedge fund industry’s total asset base, and by monitoring their best picks, we have spotted a number of investment strategies that have historically outperformed the S&P 500 index. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points annually 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 outperformed the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Just as important, bullish insider trading activity is a second way to break down the marketplace. There are lots of motivations for an executive to cut shares of his or her company, but only one, very simple reason why they would initiate a purchase. Many empirical studies have demonstrated the market-beating potential of this method if shareholders understand where to look (learn more here).

Keeping this in mind, it’s important to take a peek at the latest action regarding Vale SA (ADR) (NYSE:VALE).

How are hedge funds trading Vale SA (ADR) (NYSE:VALE)?

At Q1’s end, a total of 21 of the hedge funds we track were bullish in this stock, a change of -22% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably.

Vale SA (ADR) (NYSE:VALE)According to our comprehensive database, Jim Simons’s Renaissance Technologies had the largest position in Vale SA (ADR) (NYSE:VALE), worth close to $56.9 million, accounting for 0.1% of its total 13F portfolio. Coming in second is Jim Simons of Renaissance Technologies, with a $56.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that hold long positions include Ken Fisher’s Fisher Asset Management, Cliff Asness’s AQR Capital Management and Jason Adler’s AlphaBet Management.

Since Vale SA (ADR) (NYSE:VALE) has faced a declination in interest from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds that decided to sell off their full holdings last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest stake of the “upper crust” of funds we key on, comprising an estimated $72.5 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $53.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds last quarter.

How have insiders been trading Vale SA (ADR) (NYSE:VALE)?

Insider purchases made by high-level executives is most useful when the company we’re looking at has seen transactions within the past six months. Over the last half-year time period, Vale SA (ADR) (NYSE:VALE) has experienced zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to Vale SA (ADR) (NYSE:VALE). These stocks are Cameco Corporation (USA) (NYSE:CCJ), Teck Resources Ltd (USA) (NYSE:TCK), BHP Billiton Limited (ADR) (NYSE:BHP), BHP Billiton plc (ADR) (NYSE:BBL), and Rio Tinto plc (ADR) (NYSE:RIO). This group of stocks are the members of the industrial metals & minerals industry and their market caps are similar to VALE’s market cap.

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