PetroLogistics LP (PDH): Hedge Funds Are Bearish and Insiders Are Undecided, What Should You Do?

If you were to ask many investors, hedge funds are seen as delayed, old financial vehicles of a forgotten age. Although there are more than 8,000 hedge funds in operation currently, this site focuses on the moguls of this group, close to 525 funds. It is assumed that this group has its hands on the lion’s share of all hedge funds’ total capital, and by tracking their best investments, we’ve deciphered a few investment strategies that have historically outperformed the S&P 500. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).

Just as crucial, optimistic insider trading sentiment is a second way to analyze the financial markets. Just as you’d expect, there are lots of incentives for a corporate insider to downsize shares of his or her company, but just one, very obvious reason why they would behave bullishly. Various empirical studies have demonstrated the impressive potential of this strategy if you know where to look (learn more here).

Now that that’s out of the way, it’s important to study the latest info surrounding PetroLogistics LP (NYSE:PDH).

What have hedge funds been doing with PetroLogistics LP (NYSE:PDH)?

Heading into Q3, a total of 6 of the hedge funds we track held long positions in this stock, a change of -40% from one quarter earlier. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes significantly.

According to our 13F database, James Dinan’s York Capital Management had the largest position in PetroLogistics LP (NYSE:PDH), worth close to $219.4 million, accounting for 4.6% of its total 13F portfolio. Coming in second is Water Street Capital, managed by Gilchrist Berg, which held a $25.6 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Paul Marshall and Ian Wace’s Marshall Wace LLP, Jim Simons’s Renaissance Technologies and Robert Joseph Caruso’s Select Equity Group.

Because PetroLogistics LP (NYSE:PDH) has experienced dropping sentiment from the top-tier hedge fund industry, it’s easy to see that there is a sect of hedgies that decided to sell off their entire stakes last quarter. It’s worth mentioning that Israel Englander’s Catapult Capital Management dumped the largest position of all the hedgies we key on, totaling an estimated $7.4 million in stock. Arvind Sanger’s fund, GeoSphere Capital Management, also dumped its stock, about $1.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 4 funds last quarter.

Insider trading activity in PetroLogistics LP (NYSE:PDH)

Bullish insider trading is best served when the company in focus has seen transactions within the past half-year. Over the latest 180-day time frame, PetroLogistics LP (NYSE:PDH) has seen zero unique insiders buying, and zero insider sales (see the details of insider trades here).

We’ll check out the relationship between both of these indicators in other stocks similar to PetroLogistics LP (NYSE:PDH). These stocks are Braskem SA (ADR) (NYSE:BAK), LSB Industries, Inc. (NYSE:LXU), Huntsman Corporation (NYSE:HUN), A. Schulman Inc (NASDAQ:SHLM), and Balchem Corporation (NASDAQ:BCPC). This group of stocks are the members of the chemicals – major diversified industry and their market caps are closest to PDH’s market cap.

Using the results demonstrated by our strategies, average investors must always keep one eye on hedge fund and insider trading activity, and PetroLogistics LP (NYSE:PDH) is no exception.

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