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Did Hedge Funds Drop The Ball On Mueller Water Products, Inc. (MWA) ?

Nina Todic

Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 4 percentage points through September 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.

Mueller Water Products, Inc. (NYSE:MWA) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds' portfolios at the end of the second quarter of 2019. 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 Arch Coal, Inc. (NYSE:ARCH), Ebix Inc (NASDAQ:EBIX), and ShockWave Medical, Inc. (NASDAQ:SWAV) to gather more data points. Our calculations also showed that MWA isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

GAMCO Investors, Mario Gabelli

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to review the new hedge fund action encompassing Mueller Water Products, Inc. (NYSE:MWA).

What does smart money think about Mueller Water Products, Inc. (NYSE:MWA)?

At Q2's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in MWA a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with MWA Positions

More specifically, Impax Asset Management was the largest shareholder of Mueller Water Products, Inc. (NYSE:MWA), with a stake worth $110.2 million reported as of the end of March. Trailing Impax Asset Management was GAMCO Investors, which amassed a stake valued at $58.4 million. Millennium Management, Renaissance Technologies, and Royce & Associates were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Mueller Water Products, Inc. (NYSE:MWA) has witnessed falling interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of fund managers that slashed their positions entirely in the second quarter. Intriguingly, Frederick DiSanto's Ancora Advisors said goodbye to the biggest position of the "upper crust" of funds tracked by Insider Monkey, valued at about $0.3 million in stock. Joel Greenblatt's fund, Gotham Asset Management, also cut its stock, about $0.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks similar to Mueller Water Products, Inc. (NYSE:MWA). These stocks are Arch Coal, Inc. (NYSE:ARCH), Ebix Inc (NASDAQ:EBIX), ShockWave Medical, Inc. (NASDAQ:SWAV), and Hailiang Education Group Inc. (NASDAQ:HLG). This group of stocks' market valuations resemble MWA's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARCH,27,364937,-1 EBIX,18,158386,-4 SWAV,7,111937,-7 HLG,2,6378,-1 Average,13.5,160410,-3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $246 million in MWA's case. Arch Coal, Inc. (NYSE:ARCH) is the most popular stock in this table. On the other hand Hailiang Education Group Inc. (NASDAQ:HLG) is the least popular one with only 2 bullish hedge fund positions. Mueller Water Products, Inc. (NYSE:MWA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on MWA as the stock returned 15.1% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

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