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 821 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 March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Miller Industries, Inc. (NYSE:MLR) and determine whether the smart money was really smart about this stock.
Hedge fund interest in Miller Industries, Inc. (NYSE:MLR) shares was flat at the end of last quarter. This is usually a negative indicator. 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 SunCoke Energy, Inc (NYSE:SXC), Juniper Industrial Holdings, Inc. (NYSE:JIH), and BeyondSpring, Inc. (NASDAQ:BYSI) to gather more data points. Our calculations also showed that MLR isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
[caption id="attachment_728717" align="aligncenter" width="400"] Roger Ibbotson of Zebra Capital Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to analyze the latest hedge fund action encompassing Miller Industries, Inc. (NYSE:MLR).
What does smart money think about Miller Industries, Inc. (NYSE:MLR)?
Heading into the second quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in MLR a year ago. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Miller Industries, Inc. (NYSE:MLR), which was worth $42.7 million at the end of the third quarter. On the second spot was Huber Capital Management which amassed $2.7 million worth of shares. Renaissance Technologies, Potrero Capital Research, and Arrowstreet Capital 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 Potrero Capital Research allocated the biggest weight to Miller Industries, Inc. (NYSE:MLR), around 1.4% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.58 percent of its 13F equity portfolio to MLR.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Zebra Capital Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Value Holdings LP).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Miller Industries, Inc. (NYSE:MLR) but similarly valued. We will take a look at SunCoke Energy, Inc (NYSE:SXC), Juniper Industrial Holdings, Inc. (NYSE:JIH), BeyondSpring, Inc. (NASDAQ:BYSI), and Mitek Systems, Inc. (NASDAQ:MITK). This group of stocks' market caps are similar to MLR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SXC,17,66506,-3 JIH,17,114884,1 BYSI,1,256,0 MITK,17,62636,-2 Average,13,61071,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $55 million in MLR's case. SunCoke Energy, Inc (NYSE:SXC) is the most popular stock in this table. On the other hand BeyondSpring, Inc. (NASDAQ:BYSI) is the least popular one with only 1 bullish hedge fund positions. Miller Industries, Inc. (NYSE:MLR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately MLR wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MLR investors were disappointed as the stock returned 5.9% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.