Hedge Funds Are Coming Back To Innospec Inc. (IOSP)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Innospec Inc. (NASDAQ:IOSP) and determine whether the smart money was really smart about this stock.

Is Innospec Inc. (NASDAQ:IOSP) a healthy stock for your portfolio? Money managers were becoming hopeful. The number of bullish hedge fund positions moved up by 4 in recent months. Innospec Inc. (NASDAQ:IOSP) was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 20. Our calculations also showed that IOSP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Joe Huber - Huber Capital Management

Joe Huber of Huber Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s view the latest hedge fund action encompassing Innospec Inc. (NASDAQ:IOSP).

Hedge fund activity in Innospec Inc. (NASDAQ:IOSP)

Heading into the third quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from the first quarter of 2020. On the other hand, there were a total of 13 hedge funds with a bullish position in IOSP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Royce & Associates was the largest shareholder of Innospec Inc. (NASDAQ:IOSP), with a stake worth $52.4 million reported as of the end of September. Trailing Royce & Associates was Arrowstreet Capital, which amassed a stake valued at $7.3 million. Marshall Wace LLP, Huber Capital Management, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Huber Capital Management allocated the biggest weight to Innospec Inc. (NASDAQ:IOSP), around 1.3% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 1.06 percent of its 13F equity portfolio to IOSP.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Laurion Capital Management, managed by Benjamin A. Smith, created the biggest position in Innospec Inc. (NASDAQ:IOSP). Laurion Capital Management had $0.5 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $0.4 million position during the quarter. The other funds with brand new IOSP positions are Donald Sussman’s Paloma Partners, Peter Muller’s PDT Partners, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Innospec Inc. (NASDAQ:IOSP) but similarly valued. We will take a look at Albany International Corp. (NYSE:AIN), Tenet Healthcare Corp (NYSE:THC), Prospect Capital Corporation (NASDAQ:PSEC), Cardlytics, Inc. (NASDAQ:CDLX), Prestige Consumer Healthcare Inc. (NYSE:PBH), Central Garden & Pet Co (NASDAQ:CENT), and Dicerna Pharmaceuticals Inc (NASDAQ:DRNA). This group of stocks’ market caps are closest to IOSP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AIN 19 46345 1
THC 28 582586 -7
PSEC 7 22588 -1
CDLX 27 588778 1
PBH 20 118784 3
CENT 15 138827 -4
DRNA 35 342076 10
Average 21.6 262855 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.6 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $90 million in IOSP’s case. Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) is the most popular stock in this table. On the other hand Prospect Capital Corporation (NASDAQ:PSEC) is the least popular one with only 7 bullish hedge fund positions. Innospec Inc. (NASDAQ:IOSP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IOSP is 55.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately IOSP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IOSP investors were disappointed as the stock returned -18% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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