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

It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. This was the case with hedge funds, who we heard were pulling money from the market amid the volatility, which included money from small-cap stocks, which they invest in at a higher rate than other investors. This action contributed to the greater decline in these stocks during the tumultuous period. We will study how this market volatility affected their sentiment towards Schweitzer-Mauduit International, Inc. (NYSE:SWM) during the quarter below.

Schweitzer-Mauduit International, Inc. (NYSE:SWM) was in 8 hedge funds’ portfolios at the end of December. SWM has experienced a decrease in hedge fund interest of late. There were 14 hedge funds in our database with SWM positions at the end of the previous quarter. Our calculations also showed that SWM isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

BlueMountain Capital Management's Returns, AUM and Holdings

Let’s take a look at the fresh hedge fund action surrounding Schweitzer-Mauduit International, Inc. (NYSE:SWM).

How are hedge funds trading Schweitzer-Mauduit International, Inc. (NYSE:SWM)?

Heading into the first quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -43% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SWM over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SWM_may2019

Among these funds, Renaissance Technologies held the most valuable stake in Schweitzer-Mauduit International, Inc. (NYSE:SWM), which was worth $12.3 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $1.9 million worth of shares. Moreover, Two Sigma Advisors, Blue Mountain Capital, and Royce & Associates were also bullish on Schweitzer-Mauduit International, Inc. (NYSE:SWM), allocating a large percentage of their portfolios to this stock.

Since Schweitzer-Mauduit International, Inc. (NYSE:SWM) has witnessed falling interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of money managers that elected to cut their positions entirely by the end of the third quarter. Interestingly, Noam Gottesman’s GLG Partners dropped the largest stake of all the hedgies tracked by Insider Monkey, worth an estimated $5.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $4.1 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 6 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Schweitzer-Mauduit International, Inc. (NYSE:SWM) but similarly valued. These stocks are The Providence Service Corporation (NASDAQ:PRSC), Partner Communications Company Ltd (NASDAQ:PTNR), Meta Financial Group Inc. (NASDAQ:CASH), and CBTX, Inc. (NASDAQ:CBTX). This group of stocks’ market values are similar to SWM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PRSC 14 157433 2
PTNR 2 12760 0
CASH 13 69041 -2
CBTX 8 25322 0
Average 9.25 66139 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $19 million in SWM’s case. The Providence Service Corporation (NASDAQ:PRSC) is the most popular stock in this table. On the other hand Partner Communications Company Ltd (NASDAQ:PTNR) is the least popular one with only 2 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on SWM as the stock returned 44.7% and outperformed the market by an even larger margin.

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

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