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Were Hedge Funds Right About Flocking Into Innospec Inc. (IOSP) ?

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. NASDAQ and Russell 2000 indices were already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points in the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Innospec Inc. (NASDAQ:IOSP).

Innospec Inc. (NASDAQ:IOSP) has seen an increase in hedge fund sentiment recently. IOSP was in 14 hedge funds’ portfolios at the end of December. There were 12 hedge funds in our database with IOSP holdings at the end of the previous quarter. Our calculations also showed that IOSP isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Joe Huber - Huber Capital Management

We’re going to view the latest hedge fund action encompassing Innospec Inc. (NASDAQ:IOSP).

What does the smart money think about Innospec Inc. (NASDAQ:IOSP)?

At Q4’s end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in IOSP over the last 14 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

IOSP_apr2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Joe Huber’s Huber Capital Management has the biggest position in Innospec Inc. (NASDAQ:IOSP), worth close to $24.3 million, comprising 2.2% of its total 13F portfolio. Coming in second is Chuck Royce of Royce & Associates, with a $13.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions comprise Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Noam Gottesman’s GLG Partners and Jim Simons’s Renaissance Technologies.

With a general bullishness amongst the heavyweights, key money managers have jumped into Innospec Inc. (NASDAQ:IOSP) headfirst. Weld Capital Management, managed by Minhua Zhang, created the most valuable position in Innospec Inc. (NASDAQ:IOSP). Weld Capital Management had $0.5 million invested in the company at the end of the quarter. Hoon Kim’s Quantinno Capital also made a $0.3 million investment in the stock during the quarter. The only other fund with a new position in the stock is Benjamin A. Smith’s Laurion Capital Management.

Let’s go over hedge fund activity in other stocks similar to Innospec Inc. (NASDAQ:IOSP). We will take a look at Ameris Bancorp (NASDAQ:ABCB), Regenxbio Inc (NASDAQ:RGNX), Orion Engineered Carbons SA (NYSE:OEC), and Heartland Express, Inc. (NASDAQ:HTLD). This group of stocks’ market caps match IOSP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ABCB 18 120240 5
RGNX 17 232321 -7
OEC 23 329505 0
HTLD 7 7945 -4
Average 16.25 172503 -1.5

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 $173 million. That figure was $53 million in IOSP’s case. Orion Engineered Carbons SA (NYSE:OEC) is the most popular stock in this table. On the other hand Heartland Express, Inc. (NASDAQ:HTLD) 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 calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on IOSP as the stock returned 35.7% and outperformed the market by an even larger margin.

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

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