Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Mueller Industries, Inc. (NYSE:MLI).
Mueller Industries, Inc. (NYSE:MLI) was in 15 hedge funds' portfolios at the end of June. MLI investors should pay attention to an increase in support from the world's most elite money managers of late. There were 13 hedge funds in our database with MLI positions at the end of the previous quarter. Our calculations also showed that MLI 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.
Why do we pay any attention at all to hedge fund sentiment? 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 40 percentage points since May 2014 through May 30, 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 go over the fresh hedge fund action surrounding Mueller Industries, Inc. (NYSE:MLI).
What does smart money think about Mueller Industries, Inc. (NYSE:MLI)?
Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in MLI a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, GAMCO Investors was the largest shareholder of Mueller Industries, Inc. (NYSE:MLI), with a stake worth $126.5 million reported as of the end of March. Trailing GAMCO Investors was Gates Capital Management, which amassed a stake valued at $28.9 million. Royce & Associates, Fisher Asset Management, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds have been driving this bullishness. Gates Capital Management, managed by Jeffrey Gates, established the most outsized position in Mueller Industries, Inc. (NYSE:MLI). Gates Capital Management had $28.9 million invested in the company at the end of the quarter. Cliff Asness's AQR Capital Management also initiated a $0.4 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer's PEAK6 Capital Management and Steve Cohen's Point72 Asset Management.
Let's now take a look at hedge fund activity in other stocks similar to Mueller Industries, Inc. (NYSE:MLI). We will take a look at Upwork Inc. (NASDAQ:UPWK), Prestige Consumer Healthcare Inc. (NYSE:PBH), Silicon Motion Technology Corporation (NASDAQ:SIMO), and SSR Mining Inc. (NASDAQ:SSRM). All of these stocks' market caps are closest to MLI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UPWK,10,50349,1 PBH,15,66050,2 SIMO,12,141488,-1 SSRM,16,139260,3 Average,13.25,99287,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $196 million in MLI's case. SSR Mining Inc. (NASDAQ:SSRM) is the most popular stock in this table. On the other hand Upwork Inc. (NASDAQ:UPWK) is the least popular one with only 10 bullish hedge fund positions. Mueller Industries, Inc. (NYSE:MLI) 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. 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. Unfortunately MLI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MLI were disappointed as the stock returned -1.6% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.