Hedge Funds Are Souring On Quaker Chemical Corp (KWR)

In this article we will take a look at whether hedge funds think Quaker Chemical Corp (NYSE:KWR) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Quaker Chemical Corp (NYSE:KWR) was in 8 hedge funds’ portfolios at the end of March. KWR shareholders have witnessed a decrease in enthusiasm from smart money in recent months. There were 9 hedge funds in our database with KWR holdings at the end of the previous quarter. Our calculations also showed that KWR isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by 58 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 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the latest hedge fund action encompassing Quaker Chemical Corp (NYSE:KWR).

How are hedge funds trading Quaker Chemical Corp (NYSE:KWR)?

At Q1’s end, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in KWR a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is KWR A Good Stock To Buy?

The largest stake in Quaker Chemical Corp (NYSE:KWR) was held by Royce & Associates, which reported holding $96.6 million worth of stock at the end of September. It was followed by Greenhouse Funds with a $17.1 million position. Other investors bullish on the company included Citadel Investment Group, Citadel Investment Group, and Holocene Advisors. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to Quaker Chemical Corp (NYSE:KWR), around 4.16% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 1.32 percent of its 13F equity portfolio to KWR.

Seeing as Quaker Chemical Corp (NYSE:KWR) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedgies that slashed their entire stakes heading into Q4. At the top of the heap, Israel Englander’s Millennium Management dropped the biggest stake of the “upper crust” of funds watched by Insider Monkey, worth close to $1.4 million in stock. Donald Sussman’s fund, Paloma Partners, also dropped its stock, about $0.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Quaker Chemical Corp (NYSE:KWR). We will take a look at Vivint Smart Home, Inc. (NYSE:VVNT), ViaSat, Inc. (NASDAQ:VSAT), Old National Bancorp (NYSE:ONB), and HMS Holdings Corp. (NASDAQ:HMSY). This group of stocks’ market values match KWR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VVNT 9 6514 -6
VSAT 21 947696 -5
ONB 15 20462 1
HMSY 20 78205 -5
Average 16.25 263219 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $120 million in KWR’s case. ViaSat, Inc. (NASDAQ:VSAT) is the most popular stock in this table. On the other hand Vivint Smart Home, Inc. (NYSE:VVNT) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Quaker Chemical Corp (NYSE:KWR) is even less popular than VVNT. Hedge funds clearly dropped the ball on KWR as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on KWR as the stock returned 40.1% so far in the second quarter and outperformed the market by an even larger margin.

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