At a time when the three big indexes, the S&P, NASDAQ, and Dow Jones, are roughly flat, investors are selling Vale SA (ADR) (NYSE:VALE), Vanguard Natural Resources, LLC (NASDAQ:VNR), Weatherford International Plc (NYSE:WFT), Stone Energy Corporation (NYSE:SGY), and MagneGas Corporation (NASDAQ:MNGA) for various reasons. Let’s find out why.
Given that Insider Monkey has done a lot of research into what the smart money likes and doesn’t like, let’s also analyze relevant hedge fund sentiment toward the stocks. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 36 month period beginning from September 2012 (see the details here).
Despite the price of iron ore rebounding above $40 per metric ton, shares of Vale SA (ADR) (NYSE:VALE) are off 4.06% in morning trading after Brazil froze some of the Brazilian assets of Vale SA (ADR) (NYSE:VALE) and BHP Billiton Limited (ADR) (NYSE:BHP) because the two companies’ joint venture, Samarco, was in the wrong for a massive dam rupture that killed 16 people and caused a great deal of environmental damage. In a ruling last Friday, a Brazilian judge stated that Vale and BHP could be responsible for the disaster despite Samarco being a somewhat independent company from the two. The Brazilian government could win up to $5 billion in damages (Samarco doesn’t have enough assets to cover the damages so the government is targeting Vale and BHP).
Investors are selling Vanguard Natural Resources, LLC (NASDAQ:VNR) as the company is the latest energy corporation to follow Kinder Morgan and cut its dividend distribution on the back of weak energy prices. According to the company, Vanguard Natural Resources will pay a cash distribution of $0.03 per common unit for the month of January 2016, or 75% below the company’s $0.1175 distribution paid last month. Shares of Vanguard Natural Resources, LLC (NASDAQ:VNR) are off by 11% on the news. A total of 3 funds from our database owned 0.30% of Vanguard’s float on September 30.
On the next page, we examine Weatherford International, Stone Energy Corporation, and MagneGas Corporation.