Were Hedge Funds Right About Flocking Into Versum Materials, Inc. (VSM)?

Legendary investors such as Jeffrey Talpins and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Versum Materials, Inc. (NYSE:VSM) from the perspective of those elite funds.

Is Versum Materials, Inc. (NYSE:VSM) a good investment now? Hedge funds are buying. The number of bullish hedge fund bets rose by 8 lately. Our calculations also showed that vsm isn’t among the 30 most popular stocks among hedge funds. VSM was in 29 hedge funds’ portfolios at the end of December. There were 21 hedge funds in our database with VSM positions at the end of the previous quarter.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Jeffrey Gates Gates Capital

We’re going to review the latest hedge fund action regarding Versum Materials, Inc. (NYSE:VSM).

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

Heading into the first quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the second quarter of 2018. By comparison, 24 hedge funds held shares or bullish call options in VSM a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds With VSM Positions

According to Insider Monkey’s hedge fund database, David Cohen and Harold Levy’s Iridian Asset Management has the biggest position in Versum Materials, Inc. (NYSE:VSM), worth close to $166.9 million, comprising 2.2% of its total 13F portfolio. The second largest stake is held by Gates Capital Management, managed by Jeffrey Gates, which holds a $67.3 million position; 3.7% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions comprise D. E. Shaw’s D E Shaw, John Petry’s Sessa Capital and Israel Englander’s Millennium Management.

Consequently, some big names were breaking ground themselves. StackLine Partners, managed by Brian Gootzeit and Andrew Frank, initiated the most outsized position in Versum Materials, Inc. (NYSE:VSM). StackLine Partners had $13.9 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $7.1 million investment in the stock during the quarter. The other funds with brand new VSM positions are David Steinberg and Eric Udoff’s Marlowe Partners, Jim Simons’s Renaissance Technologies, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s also examine hedge fund activity in other stocks similar to Versum Materials, Inc. (NYSE:VSM). We will take a look at Spirit Realty Capital Inc (NYSE:SRC), Wolverine World Wide, Inc. (NYSE:WWW), Regal Beloit Corporation (NYSE:RBC), and Companhia Siderurgica Nacional (NYSE:SID). This group of stocks’ market valuations are similar to VSM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SRC 19 252031 -2
WWW 12 84588 -1
RBC 17 85718 0
SID 7 4228 0
Average 13.75 106641 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $492 million in VSM’s case. Spirit Realty Capital Inc (NYSE:SRC) is the most popular stock in this table. On the other hand Companhia Siderurgica Nacional (NYSE:SID) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Versum Materials, Inc. (NYSE:VSM) is more popular among hedge funds. 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. Hedge funds were also right about betting on VSM as the stock returned 88% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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