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This Metric Says You Are Smart to Sell Sims Metal Management Ltd (ADR) (SMS)

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Is Sims Metal Management Ltd (ADR) (NYSE:SMS) a buy right now? Investors who are in the know are getting less bullish. The number of long hedge fund bets were cut by 3 recently.

In the eyes of most investors, hedge funds are seen as slow, outdated investment tools of yesteryear. While there are greater than 8000 funds trading at present, we hone in on the leaders of this club, about 450 funds. Most estimates calculate that this group controls most of all hedge funds’ total capital, and by monitoring their highest performing investments, we have unearthed a few investment strategies that have historically beaten the S&P 500 index. 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 began to sharing our picks with our subscribers at the end of August 2012, we have beaten the S&P 500 index by 23.3 percentage points in 8 months (see the details here).

Just as beneficial, optimistic insider trading activity is a second way to parse down the world of equities. Just as you’d expect, there are lots of incentives for an upper level exec to sell shares of his or her company, but only one, very obvious reason why they would buy. Several empirical studies have demonstrated the market-beating potential of this strategy if you know what to do (learn more here).

With all of this in mind, we’re going to take a glance at the recent action surrounding Sims Metal Management Ltd (ADR) (NYSE:SMS).

How have hedgies been trading Sims Metal Management Ltd (ADR) (NYSE:SMS)?

In preparation for this quarter, a total of 4 of the hedge funds we track were bullish in this stock, a change of -43% from the previous quarter.

Seeing as Sims Metal Management Ltd (ADR) (NYSE:SMS) has faced bearish sentiment from the smart money, logic holds that there lies a certain “tier” of money managers who sold off their positions entirely at the end of the first quarter. Intriguingly, Ian Simm’s Impax Asset Management sold off the largest position of all the hedgies we key on, worth about $12.2 million in stock, and Russell Lucas of Lucas Capital Management was right behind this move, as the fund said goodbye to about $0.7 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 3 funds at the end of the first quarter.

Allegheny Technologies Incorporated (NYSE:ATI)

Insider trading activity in Sims Metal Management Ltd (ADR) (NYSE:SMS)

Insider trading activity, especially when it’s bullish, is at its handiest when the company in question has seen transactions within the past six months. Over the latest 180-day time period, Sims Metal Management Ltd (ADR) (NYSE:SMS) has experienced zero unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Sims Metal Management Ltd (ADR) (NYSE:SMS). These stocks are Allegheny Technologies Incorporated (NYSE:ATI), Mueller Industries, Inc. (NYSE:MLI), Carpenter Technology Corporation (NYSE:CRS), Chart Industries, Inc. (NASDAQ:GTLS), and Worthington Industries, Inc. (NYSE:WOR). This group of stocks are in the metal fabrication industry and their market caps resemble SMS’s market cap.

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