The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Meritor Inc (NYSE:MTOR) and determine whether the smart money was really smart about this stock.
Meritor Inc (NYSE:MTOR) has seen an increase in activity from the world's largest hedge funds in recent months. Meritor Inc (NYSE:MTOR) was in 18 hedge funds' portfolios at the end of June. The all time high for this statistics is 29. Our calculations also showed that MTOR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to take a gander at the recent hedge fund action regarding Meritor Inc (NYSE:MTOR).
How are hedge funds trading Meritor Inc (NYSE:MTOR)?
At Q2's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in MTOR a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Glenview Capital was the largest shareholder of Meritor Inc (NYSE:MTOR), with a stake worth $107.9 million reported as of the end of September. Trailing Glenview Capital was Arrowstreet Capital, which amassed a stake valued at $23.8 million. Royce & Associates, GMT Capital, and Balyasny Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Glenview Capital allocated the biggest weight to Meritor Inc (NYSE:MTOR), around 2.98% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, designating 1.76 percent of its 13F equity portfolio to MTOR.
As one would reasonably expect, some big names were leading the bulls' herd. Laurion Capital Management, managed by Benjamin A. Smith, initiated the biggest position in Meritor Inc (NYSE:MTOR). Laurion Capital Management had $0.8 million invested in the company at the end of the quarter. Mika Toikka's AlphaCrest Capital Management also initiated a $0.8 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp, Matthew Hulsizer's PEAK6 Capital Management, and Robert Vincent McHugh's Jade Capital Advisors.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Meritor Inc (NYSE:MTOR) but similarly valued. These stocks are Enviva Partners, LP (NYSE:EVA), Sunnova Energy International Inc. (NYSE:NOVA), Amneal Pharmaceuticals, Inc. (NYSE:AMRX), Monmouth Real Estate Investment Corp. (NYSE:MNR), Esperion Therapeutics (NASDAQ:ESPR), Innoviva, Inc. (NASDAQ:INVA), and Portola Pharmaceuticals Inc (NASDAQ:PTLA). This group of stocks' market caps are closest to MTOR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EVA,8,217021,3 NOVA,10,92088,1 AMRX,11,20063,4 MNR,10,60863,-2 ESPR,19,324252,1 INVA,19,293485,0 PTLA,26,419311,9 Average,14.7,203869,2.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.7 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $207 million in MTOR's case. Portola Pharmaceuticals Inc (NASDAQ:PTLA) is the most popular stock in this table. On the other hand Enviva Partners, LP (NYSE:EVA) is the least popular one with only 8 bullish hedge fund positions. Meritor Inc (NYSE:MTOR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MTOR is 52.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately MTOR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MTOR were disappointed as the stock returned 5.8% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.