Here is What Hedge Funds Really Think About Materials, Inc. (VSM)?

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Is Versum Materials, Inc. (NYSE:VSM) a healthy stock for your portfolio? Hedge funds are becoming less hopeful. The number of long hedge fund bets went down by 7 in recent months. Our calculations also showed that VSM isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson, Carlson Capital

Unlike this former hedge fund manager 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. Let’s take a glance at the key hedge fund action surrounding Versum Materials, Inc. (NYSE:VSM).

How have hedgies been trading Versum Materials, Inc. (NYSE:VSM)?

At Q2’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in VSM a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

No of Hedge Funds with VSM Positions

Among these funds, Magnetar Capital held the most valuable stake in Versum Materials, Inc. (NYSE:VSM), which was worth $143.3 million at the end of the second quarter. On the second spot was TIG Advisors which amassed $119.1 million worth of shares. Moreover, Carlson Capital, Alpine Associates, and Melqart Asset Management were also bullish on Versum Materials, Inc. (NYSE:VSM), allocating a large percentage of their portfolios to this stock.

Judging by the fact that Versum Materials, Inc. (NYSE:VSM) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few fund managers that decided to sell off their full holdings by the end of the second quarter. It’s worth mentioning that Kenneth Mario Garschina’s Mason Capital Management said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, comprising close to $94.3 million in stock. Jeffrey Gates’s fund, Gates Capital Management, also cut its stock, about $88.5 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 7 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Versum Materials, Inc. (NYSE:VSM) but similarly valued. These stocks are JetBlue Airways Corporation (NASDAQ:JBLU), National Instruments Corporation (NASDAQ:NATI), The New York Times Company (NYSE:NYT), and Harley-Davidson, Inc. (NYSE:HOG). All of these stocks’ market caps are closest to VSM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JBLU 27 637275 1
NATI 22 486653 -6
NYT 41 1278691 9
HOG 14 49999 -2
Average 26 613155 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $613 million. That figure was $913 million in VSM’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand Harley-Davidson, Inc. (NYSE:HOG) is the least popular one with only 14 bullish hedge fund positions. Versum Materials, Inc. (NYSE:VSM) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on VSM, though not to the same extent, as the stock returned 2.8% during the third quarter and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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