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Hedge Funds Aren’t Crazy About Schweitzer-Mauduit International, Inc. (SWM) Anymore

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Schweitzer-Mauduit International, Inc. (NYSE:SWM) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Schweitzer-Mauduit International, Inc. (NYSE:SWM) was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. SWM investors should pay attention to a decrease in support from the world’s most elite money managers recently. There were 13 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 (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.

Today there are dozens of gauges stock market investors put to use to evaluate their holdings. A pair of the most underrated gauges are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the elite money managers can outpace the market by a superb amount (see the details here).

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. With all of this in mind let’s take a peek at the new hedge fund action surrounding Schweitzer-Mauduit International, Inc. (NYSE:SWM).

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

Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the fourth quarter of 2019. By comparison, 10 hedge funds held shares or bullish call options in SWM a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is SWM A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Schweitzer-Mauduit International, Inc. (NYSE:SWM), which was worth $16.2 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $2.1 million worth of shares. Royce & Associates, Marshall Wace LLP, and Two Sigma Advisors 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 AlphaOne Capital Partners allocated the biggest weight to Schweitzer-Mauduit International, Inc. (NYSE:SWM), around 0.4% of its 13F portfolio. Gotham Asset Management is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to SWM.

Because Schweitzer-Mauduit International, Inc. (NYSE:SWM) has faced bearish sentiment from the smart money, it’s safe to say that there is a sect of fund managers who sold off their positions entirely by the end of the first quarter. Intriguingly, Minhua Zhang’s Weld Capital Management dumped the largest position of the “upper crust” of funds followed by Insider Monkey, comprising close to $1 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund sold off about $0.9 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 3 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Schweitzer-Mauduit International, Inc. (NYSE:SWM) but similarly valued. We will take a look at SeaWorld Entertainment Inc (NYSE:SEAS), Encore Wire Corporation (NASDAQ:WIRE), Esperion Therapeutics (NASDAQ:ESPR), and Dillard’s, Inc. (NYSE:DDS). 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
SEAS 27 455794 -12
WIRE 14 33051 1
ESPR 18 190538 3
DDS 13 125316 -7
Average 18 201175 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $201 million. That figure was $25 million in SWM’s case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand Dillard’s, Inc. (NYSE:DDS) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Schweitzer-Mauduit International, Inc. (NYSE:SWM) is even less popular than DDS. 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 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on SWM, though not to the same extent, as the stock returned 21.9% during the second quarter and outperformed the market as well.

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