This Metric Says You Are Smart to Sell RPM International Inc. (RPM)

RPM International Inc. (NYSE:RPM) investors should be aware of a decrease in enthusiasm from smart money in recent months.

If you’d ask most shareholders, hedge funds are perceived as slow, old financial tools of yesteryear. While there are greater than 8000 funds with their doors open today, we at Insider Monkey look at the upper echelon of this club, close to 450 funds. It is estimated that this group oversees most of the smart money’s total asset base, and by tracking their best equity investments, we have discovered a number of investment strategies that have historically outpaced the market. Our small-cap hedge fund strategy outstripped 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 topped the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Equally as important, optimistic insider trading sentiment is a second way to parse down the stock market universe. As the old adage goes: there are many stimuli for an insider to cut shares of his or her company, but just one, very simple reason why they would behave bullishly. Several empirical studies have demonstrated the useful potential of this tactic if piggybackers know what to do (learn more here).

Keeping this in mind, we’re going to take a look at the latest action encompassing RPM International Inc. (NYSE:RPM).

What have hedge funds been doing with RPM International Inc. (NYSE:RPM)?

At the end of the first quarter, a total of 12 of the hedge funds we track were bullish in this stock, a change of -20% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes substantially.

Of the funds we track, SAC Capital Advisors, managed by Steven Cohen, holds the biggest position in RPM International Inc. (NYSE:RPM). SAC Capital Advisors has a $78.5 million position in the stock, comprising 0.4% of its 13F portfolio. The second largest stake is held by D E Shaw, managed by D. E. Shaw, which held a $13.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds that hold long positions include Jim Simons’s Renaissance Technologies, Israel Englander’s Millennium Management and Cliff Asness’s AQR Capital Management.

Because RPM International Inc. (NYSE:RPM) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few funds who sold off their full holdings last quarter. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management cut the biggest stake of all the hedgies we monitor, totaling close to $10.3 million in stock., and Israel Englander of Catapult Capital Management was right behind this move, as the fund said goodbye to about $5.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 3 funds last quarter.

What do corporate executives and insiders think about RPM International Inc. (NYSE:RPM)?

Insider buying is best served when the primary stock in question has seen transactions within the past half-year. Over the latest six-month time frame, RPM International Inc. (NYSE:RPM) has seen zero unique insiders purchasing, and 5 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to RPM International Inc. (NYSE:RPM). These stocks are The Valspar Corporation (NYSE:VAL), Cytec Industries Inc (NYSE:CYT), Rockwood Holdings, Inc. (NYSE:ROC), NewMarket Corporation (NYSE:NEU), and Methanex Corporation (USA) (NASDAQ:MEOH). This group of stocks are the members of the specialty chemicals industry and their market caps are similar to RPM’s market cap.