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Did Hedge Funds Drop The Ball On MTS Systems Corporation (MTSC) ?

Reymerlyn Martin

Before we spend countless hours researching a company, we'd like to analyze what insiders, hedge funds and billionaire investors think of the stock first. We would like to do so because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of MTS Systems Corporation (NASDAQ:MTSC).

MTS Systems Corporation (NASDAQ:MTSC) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds' portfolios at the end of December. 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 Nabors Industries Ltd. (NYSE:NBR), ImmunoGen, Inc. (NASDAQ:IMGN), and OraSure Technologies, Inc. (NASDAQ:OSUR) to gather more data points.

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

We're going to take a gander at the latest hedge fund action surrounding MTS Systems Corporation (NASDAQ:MTSC).

What does the smart money think about MTS Systems Corporation (NASDAQ:MTSC)?

Heading into the first quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2018. On the other hand, there were a total of 13 hedge funds with a bullish position in MTSC a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

MTSC_may2019

When looking at the institutional investors followed by Insider Monkey, John W. Rogers's Ariel Investments has the biggest position in MTS Systems Corporation (NASDAQ:MTSC), worth close to $69.8 million, amounting to 1% of its total 13F portfolio. The second largest stake is held by Select Equity Group, managed by Robert Joseph Caruso, which holds a $9.2 million position; 0.1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish consist of Jim Simons's Renaissance Technologies, Israel Englander's Millennium Management and Ken Griffin's Citadel Investment Group.

Due to the fact that MTS Systems Corporation (NASDAQ:MTSC) has experienced bearish sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of hedge funds that elected to cut their full holdings last quarter. At the top of the heap, Peter Muller's PDT Partners said goodbye to the largest stake of all the hedgies monitored by Insider Monkey, worth an estimated $1.2 million in stock, and Joel Greenblatt's Gotham Asset Management was right behind this move, as the fund cut about $0.5 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as MTS Systems Corporation (NASDAQ:MTSC) but similarly valued. These stocks are Nabors Industries Ltd. (NYSE:NBR), ImmunoGen, Inc. (NASDAQ:IMGN), OraSure Technologies, Inc. (NASDAQ:OSUR), and Berry Petroleum Corporation (NASDAQ:BRY). This group of stocks' market caps are closest to MTSC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NBR,32,120080,-7 IMGN,16,140927,-2 OSUR,21,108703,0 BRY,14,66829,0 Average,20.75,109135,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $104 million in MTSC's case. Nabors Industries Ltd. (NYSE:NBR) is the most popular stock in this table. On the other hand Berry Petroleum Corporation (NASDAQ:BRY) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks MTS Systems Corporation (NASDAQ:MTSC) is even less popular than BRY. Hedge funds clearly dropped the ball on MTSC as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on MTSC as the stock returned 37.9% and outperformed the market by an even larger margin.

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

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