The successful funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Innospec Inc. (NASDAQ:IOSP) from the perspective of those successful funds.
Innospec Inc. (NASDAQ:IOSP) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds’ portfolios at the end of September, same as at the end of June. At the end of this article we will also compare IOSP to other stocks including NuStar GP Holdings, LLC (NYSE:NSH), Nuveen Credit Strategies Income Fund (NYSE:JQC), and HFF, Inc. (NYSE:HF) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
How are hedge funds trading Innospec Inc. (NASDAQ:IOSP)?
Heading into the fourth quarter of 2016, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IOSP over the last 5 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Joe Huber’s Huber Capital Management holds the biggest position in Innospec Inc. (NASDAQ:IOSP) which has a $81 million position in the stock, comprising 3.2% of its 13F portfolio. The second most bullish fund manager is Chuck Royce’s Royce & Associates which holds a $12.8 million position. Remaining hedge funds and institutional investors that are bullish encompass Cliff Asness’ AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Jim Simons’ Renaissance Technologies. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Due to the fact that Innospec Inc. (NASDAQ:IOSP) has weathered a decline in interest from the smart money, it’s safe to say that there exists a select few hedge funds that elected to cut their full holdings heading into fourth quarter. Interestingly, Clint Carlson’s Carlson Capital said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, valued at about $7.9 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $0.7 million worth of shares.
Let’s also examine hedge fund activity in other stocks similar to Innospec Inc. (NASDAQ:IOSP). These stocks are NuStar GP Holdings, LLC (NYSE:NSH), Nuveen Credit Strategies Income Fund (NYSE:JQC), HFF, Inc. (NYSE:HF), and Opus Bank (NASDAQ:OPB). This group of stocks’ market valuations resemble IOSP’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $141 million in IOSP’s case. HFF, Inc. (NYSE:HF) is the most popular stock in this table. On the other hand NuStar GP Holdings, LLC (NYSE:NSH) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Innospec Inc. (NASDAQ:IOSP) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.