Declining Smart Money Interest in Ingevity Corp (NGVT) Following Strong IPO

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Ingevity Corp (NYSE:NGVT).

Is Ingevity Corp (NYSE:NGVT) a first-rate investment right now? Money managers are really actually taking a pessimistic view. The number of long hedge fund positions that are disclosed in regulatory 13F filings were cut by 2 in recent months. NGVT was in 17 hedge funds’ portfolios at the end of the third quarter of 2016. There were 19 hedge funds in our database with NGVT positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as DoubleLine Income Solutions Fund(NYSE:DSL), Office Depot Inc (NYSE:ODP), and WebMD Health Corp. (NASDAQ:WBMD) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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How are hedge funds trading Ingevity Corp (NYSE:NGVT)?

At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, an 11% dip from one quarter earlier, after 19 hedge funds bought shares following the company’s IPO in Q2. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Gruss Asset Management, led by Howard Guberman, holds the most valuable position in Ingevity Corp (NYSE:NGVT). Gruss Asset Management has a $43.8 million position in the stock, comprising 1.2% of its 13F portfolio. The second largest stake is held by Falcon Edge Capital, led by Richard Gerson and Navroz D. Udwadia, which holds a $40 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism encompass Richard Chilton’s Chilton Investment Company, Isaac Corre’s Governors Lane, and Millennium Management, one of the 10 largest hedge funds in the world. 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.

Judging by the fact that Ingevity Corp (NYSE:NGVT) has weathered falling interest from hedge fund managers, we can see that there was a specific group of funds who sold off their positions entirely last quarter. At the top of the heap, Noah Levy and Eugene Dozortsev’s Newtyn Management dropped the biggest stake of all the investors monitored by Insider Monkey, comprising about $35.9 million in stock. Howard Marks’ fund, Oaktree Capital Management, also dropped its stock, about $8.9 million worth.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ingevity Corp (NYSE:NGVT) but similarly valued. These stocks are DoubleLine Income Solutions Fund(NYSE:DSL), Office Depot Inc (NYSE:ODP), WebMD Health Corp. (NASDAQ:WBMD), and On Assignment, Inc. (NYSE:ASGN). This group of stocks’ market values match NGVT’s market value.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $228 million. That figure was $219 million in NGVT’s case. Office Depot Inc (NYSE:ODP) is the most popular stock in this table. On the other hand DoubleLine Income Solutions Fund(NYSE:DSL) is the least popular one with only 4 bullish hedge fund positions. Ingevity Corp(NYSE:NGVT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ODP might be a better candidate to consider taking a long position in.

Disclosure: None