Should You Avoid Chemtura Corp (CHMT)?

Concerns over a shift in Fed’s easy monetary policy have hit several hedge funds hard during the third quarter. A number of sectors are in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points between June 25, 2015 and October 30, 2015. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Chemtura Corp (NYSE:CHMT).

Chemtura Corp (NYSE:CHMT) has experienced a decrease in hedge fund interest lately. 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 On Assignment, Inc. (NYSE:ASGN), Demandware Inc (NYSE:DWRE), and The Advisory Board Company (NASDAQ:ABCO) to gather more data points.

To most traders, hedge funds are viewed as underperforming, old investment tools of yesteryear. While there are greater than 8000 funds in operation at present, Our researchers hone in on the crème de la crème of this group, about 700 funds. These money managers oversee bulk of the hedge fund industry’s total asset base, and by paying attention to their top investments, Insider Monkey has formulated various investment strategies that have historically outstripped the broader indices. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Keeping this in mind, let’s take a peek at the new action encompassing Chemtura Corp (NYSE:CHMT).

What does the smart money think about Chemtura Corp (NYSE:CHMT)?

Heading into Q4, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mario Gabelli’s GAMCO Investors has the largest position in Chemtura Corp (NYSE:CHMT), worth close to $155.4 million, accounting for 1% of its total 13F portfolio. The second most bullish fund is Southeastern Asset Management, managed by Mason Hawkins, which holds a $138.1 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism include Gilchrist Berg’s Water Street Capital, Jay Petschek and Steven Major’s Corsair Capital Management and John A. Levin’s Levin Capital Strategies.

Seeing as Chemtura Corp (NYSE:CHMT) has faced declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of hedgies who were dropping their positions entirely last quarter. Interestingly, Jim Simons’ Renaissance Technologies dumped the biggest position of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $9.6 million in stock. George McCabe’s fund, Portolan Capital Management, also sold off its stock, about $6.2 million worth. These moves are interesting, as total hedge fund interest dropped by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Chemtura Corp (NYSE:CHMT). We will take a look at On Assignment, Inc. (NYSE:ASGN), Demandware Inc (NYSE:DWRE), The Advisory Board Company (NASDAQ:ABCO), and SemGroup Corp (NYSE:SEMG). This group of stocks’ market values resemble CHMT’s market value.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $192 million, compared to $437 million in CHMT’s case. SemGroup Corp (NYSE:SEMG) is the most popular stock in this table. On the other hand The Advisory Board Company (NASDAQ:ABCO) is the least popular one with only 11 bullish hedge fund positions. Chemtura Corp (NYSE:CHMT) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SEMG might be a better candidate to consider a long position.