Is Sherwin-Williams Company (SHW) Going to Burn These Hedge Funds?

Sherwin-Williams Company (NYSE:SHW) was in 32 hedge funds’ portfolio at the end of the first quarter of 2013. SHW investors should pay attention to a decrease in enthusiasm from smart money lately. There were 38 hedge funds in our database with SHW positions at the end of the previous quarter.

In the eyes of most traders, hedge funds are assumed to be unimportant, old financial tools of yesteryear. While there are more than 8000 funds in operation at present, we at Insider Monkey hone in on the elite of this club, around 450 funds. It is estimated that this group controls the majority of the smart money’s total capital, and by monitoring their highest performing equity investments, we have come up with a few investment strategies that have historically outpaced Mr. Market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Equally as beneficial, bullish insider trading sentiment is another way to parse down the marketplace. As the old adage goes: there are lots of incentives for an insider to get rid of shares of his or her company, but just one, very obvious reason why they would behave bullishly. Several empirical studies have demonstrated the impressive potential of this method if piggybackers know where to look (learn more here).

Keeping this in mind, we’re going to take a glance at the recent action encompassing Sherwin-Williams Company (NYSE:SHW).

What does the smart money think about Sherwin-Williams Company (NYSE:SHW)?

At the end of the first quarter, a total of 32 of the hedge funds we track were bullish in this stock, a change of -16% from the previous quarter. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly.

When looking at the hedgies we track, Robert Joseph Caruso’s Select Equity Group had the biggest position in Sherwin-Williams Company (NYSE:SHW), worth close to $217 million, comprising 2.9% of its total 13F portfolio. Sitting at the No. 2 spot is Chilton Investment Company, managed by Richard Chilton, which held a $142.2 million position; the fund has 3.8% of its 13F portfolio invested in the stock. Other peers that are bullish include Jim Simons’s Renaissance Technologies, Donald Chiboucis’s Columbus Circle Investors and Ken Heebner’s Capital Growth Management.

Judging by the fact that Sherwin-Williams Company (NYSE:SHW) has faced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedgies that decided to sell off their entire stakes in Q1. At the top of the heap, Andreas Halvorsen’s Viking Global dumped the biggest position of the “upper crust” of funds we track, worth an estimated $123.9 million in stock., and Jonathan Auerbach of Hound Partners was right behind this move, as the fund dropped about $23.1 million worth. These moves are interesting, as total hedge fund interest dropped by 6 funds in Q1.

How have insiders been trading Sherwin-Williams Company (NYSE:SHW)?

Insider buying is best served when the company in focus has experienced transactions within the past 180 days. Over the last 180-day time period, Sherwin-Williams Company (NYSE:SHW) has seen zero unique insiders buying, and 9 insider sales (see the details of insider trades here).

Let’s go over hedge fund and insider activity in other stocks similar to Sherwin-Williams Company (NYSE:SHW). These stocks are Westlake Chemical Corporation (NYSE:WLK), LyondellBasell Industries NV (NYSE:LYB), Sigma-Aldrich Corporation (NASDAQ:SIAL), Williams Partners L.P. (NYSE:WPZ), and PPG Industries, Inc. (NYSE:PPG). This group of stocks are the members of the specialty chemicals industry and their market caps match SHW’s market cap.

With the returns shown by Insider Monkey’s time-tested strategies, everyday investors must always keep an eye on hedge fund and insider trading activity, and Sherwin-Williams Company (NYSE:SHW) is an important part of this process.

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