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Did Hedge Funds Drop The Ball On Schweitzer-Mauduit International, Inc. (SWM)

Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by 4 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Schweitzer-Mauduit International, Inc. (NYSE:SWM).

Hedge fund interest in Schweitzer-Mauduit International, Inc. (NYSE:SWM) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SWM to other stocks including Middlesex Water Company (NASDAQ:MSEX), Mercer International Inc. (NASDAQ:MERC), and Kraton Corporation (NYSE:KRA) to get a better sense of its popularity. Our calculations also showed that SWM isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

TUDOR INVESTMENT CORP

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the fresh hedge fund action surrounding Schweitzer-Mauduit International, Inc. (NYSE:SWM).

Hedge fund activity in Schweitzer-Mauduit International, Inc. (NYSE:SWM)

At Q2’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in SWM a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SWM_oct2019

More specifically, Renaissance Technologies was the largest shareholder of Schweitzer-Mauduit International, Inc. (NYSE:SWM), with a stake worth $17 million reported as of the end of March. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $2.1 million. Citadel Investment Group, Two Sigma Advisors, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Schweitzer-Mauduit International, Inc. (NYSE:SWM) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of funds that decided to sell off their entire stakes heading into Q3. At the top of the heap, Minhua Zhang’s Weld Capital Management dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth about $0.8 million in call options. Ken Griffin’s fund, Citadel Investment Group, also dumped its call options, about $0.3 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Schweitzer-Mauduit International, Inc. (NYSE:SWM). These stocks are Middlesex Water Company (NASDAQ:MSEX), Mercer International Inc. (NASDAQ:MERC), Kraton Corporation (NYSE:KRA), and Oil States International, Inc. (NYSE:OIS). This group of stocks’ market valuations match SWM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MSEX 9 49252 0
MERC 16 159892 2
KRA 17 83773 -2
OIS 9 35062 -5
Average 12.75 81995 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $24 million in SWM’s case. Kraton Corporation (NYSE:KRA) is the most popular stock in this table. On the other hand Middlesex Water Company (NASDAQ:MSEX) is the least popular one with only 9 bullish hedge fund positions. Schweitzer-Mauduit International, Inc. (NYSE:SWM) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SWM as the stock returned 14.3% during the same time frame and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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