Vale SA (ADR) (VALE): Hedge Funds Are Bullish and Insiders Are Undecided, What Should You Do?

Vale SA (ADR) (NYSE:VALE) investors: listen up.

In the eyes of many traders, hedge funds are perceived as overrated, old financial tools of a forgotten age. Although there are over 8,000 hedge funds with their doors open currently, Insider Monkey aim at the upper echelon of this club, close to 525 funds. It is assumed that this group has its hands on the majority of the smart money’s total assets, and by tracking their best stock picks, we’ve unsheathed a few investment strategies that have historically outperformed the S&P 500. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a 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 33 percentage points in 11 months (explore the details and some picks here).

Just as useful, optimistic insider trading activity is another way to look at the world of equities. There are many reasons for a bullish insider to get rid of shares of his or her company, but only one, very clear reason why they would initiate a purchase. Plenty of empirical studies have demonstrated the valuable potential of this tactic if “monkeys” understand where to look (learn more here).

Now that that’s out of the way, let’s analyze the newest info surrounding Vale SA (ADR) (NYSE:VALE).

What have hedge funds been doing with Vale SA (ADR) (NYSE:VALE)?

In preparation for the third quarter, a total of 23 of the hedge funds we track held long positions in this stock, a change of 10% from the first quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially.

According to our 13F database, Jim Simons’s Renaissance Technologies had the most valuable position in Vale SA (ADR) (NYSE:VALE), worth close to $50.9 million, accounting for 0.1% of its total 13F portfolio. The second largest stake is held by Jason Adler of AlphaBet Management, with a $23.1 million position; 1.1% of its 13F portfolio is allocated to the stock. Other peers with similar optimism include Cliff Asness’s AQR Capital Management, D. E. Shaw’s D E Shaw and Ken Fisher’s Fisher Asset Management.

Now, certain money managers have jumped into Vale SA (ADR) (NYSE:VALE) headfirst. Renaissance Technologies, managed by Jim Simons, initiated the largest position in Vale SA (ADR) (NYSE:VALE). Renaissance Technologies had 50.9 million invested in the company at the end of the quarter. Jason Adler’s AlphaBet Management also initiated a $23.1 million position during the quarter. The other funds with new positions in the stock are Cliff Asness’s AQR Capital Management, D. E. Shaw’s D E Shaw, and Ken Fisher’s Fisher Asset Management.

What have insiders been doing with Vale SA (ADR) (NYSE:VALE)?

Insider buying made by high-level executives is particularly usable when the company in focus has experienced transactions within the past half-year. Over the last six-month time frame, Vale SA (ADR) (NYSE:VALE) has experienced zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll also take a look at the relationship between both of these indicators in other stocks similar to Vale SA (ADR) (NYSE:VALE). These stocks are Cameco Corporation (USA) (NYSE:CCJ), Teck Resources Ltd (USA) (NYSE:TCK), BHP Billiton Limited (ADR) (NYSE:BHP), BHP Billiton plc (ADR) (NYSE:BBL), and Rio Tinto plc (ADR) (NYSE:RIO). All of these stocks are in the industrial metals & minerals industry and their market caps resemble VALE’s market cap.

Using the returns shown by our strategies, average investors must always keep one eye on hedge fund and insider trading sentiment, and Vale SA (ADR) (NYSE:VALE) applies perfectly to this mantra.

Discover how hedge fund piggybacking can benefit you