Hedge Funds Are Betting On W.R. Grace & Co. (GRA)

Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the third quarter. Among them, Valeant and Micron ranked among the top 30 picks and both lost around 20%. Citigroup, which was the third most popular stock, lost 10% amid uncertainty regarding the interest rates. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

W.R. Grace & Co. (NYSE:GRA) shareholders have witnessed an increase in enthusiasm from smart money of late. 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 W.R. Berkley Corporation (NYSE:WRB), The AES Corporation (NYSE:AES), and Airgas, Inc. (NYSE:ARG) to gather more data points.

To most shareholders, hedge funds are perceived as unimportant, old investment vehicles of the past. While there are over 8000 funds with their doors open at the moment, Our researchers look at the elite of this group, around 700 funds. These money managers control the majority of the smart money’s total capital, and by watching their matchless equity investments, Insider Monkey has discovered a number of investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points a year for a decade in their back tests.

Now, we’re going to check out the latest action surrounding W.R. Grace & Co. (NYSE:GRA).

What does the smart money think about W.R. Grace & Co. (NYSE:GRA)?

At the end of the third quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Iridian Asset Management, managed by David Cohen and Harold Levy, holds the largest position in W.R. Grace & Co. (NYSE:GRA). Iridian Asset Management has a $589.8 million position in the stock, comprising 5% of its 13F portfolio. On Iridian Asset Management’s heels is Blue Ridge Capital, managed by John Griffin, which holds a $296.8 million position; the fund has 3.4% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism consist of David S. Winter and David J. Millstone’s 40 North Management, Richard Chilton’s Chilton Investment Company and John Armitage’s Egerton Capital Limited.

As industrywide interest jumped, some big names have jumped into W.R. Grace & Co. (NYSE:GRA) headfirst. Hitchwood Capital Management, managed by James Crichton, initiated the largest position in W.R. Grace & Co. (NYSE:GRA). Hitchwood Capital Management had $37.2 million invested in the company at the end of the quarter. Robert Vollero and Gentry T. Beach’s Vollero Beach Capital Partners also made a $12.2 million investment in the stock during the quarter. The other funds with brand new GRA positions are Todd J. Kantor’s Encompass Capital Advisors, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as W.R. Grace & Co. (NYSE:GRA) but similarly valued. These stocks are W.R. Berkley Corporation (NYSE:WRB), The AES Corporation (NYSE:AES), Airgas, Inc. (NYSE:ARG), and PulteGroup, Inc. (NYSE:PHM). This group of stocks’ market caps resemble GRA’s market cap.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $576 million. That figure was $2.77 billion in GRA’s case. The AES Corporation (NYSE:AES) is the most popular stock in this table. On the other hand W.R. Berkley Corporation (NYSE:WRB) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks W.R. Grace & Co. (NYSE:GRA) 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.