Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Martin Marietta Materials, Inc. (NYSE:MLM) to find out whether it was one of their high conviction long-term ideas.
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 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 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.
Let's check out the latest hedge fund action encompassing Martin Marietta Materials, Inc. (NYSE:MLM).
What have hedge funds been doing with Martin Marietta Materials, Inc. (NYSE:MLM)?
At Q1's end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MLM over the last 15 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in Martin Marietta Materials, Inc. (NYSE:MLM), which was worth $617.7 million at the end of the first quarter. On the second spot was Egerton Capital Limited which amassed $443.5 million worth of shares. Moreover, Gardner Russo & Gardner, Adage Capital Management, and Nitorum Capital were also bullish on Martin Marietta Materials, Inc. (NYSE:MLM), allocating a large percentage of their portfolios to this stock.
Consequently, key hedge funds were leading the bulls' herd. Point72 Asset Management, managed by Steve Cohen, assembled the most valuable position in Martin Marietta Materials, Inc. (NYSE:MLM). Point72 Asset Management had $75.1 million invested in the company at the end of the quarter. Steven Richman's East Side Capital (RR Partners) also initiated a $56.2 million position during the quarter. The other funds with brand new MLM positions are Dmitry Balyasny's Balyasny Asset Management, Daniel Lascano's Lomas Capital Management, and Alexander Mitchell's Scopus Asset Management.
Let's go over hedge fund activity in other stocks similar to Martin Marietta Materials, Inc. (NYSE:MLM). We will take a look at TransUnion (NYSE:TRU), Mid America Apartment Communities Inc (NYSE:MAA), Liberty Media Corporation (NASDAQ:LSXMA), and The Liberty SiriusXM Group (NASDAQ:LSXMK). This group of stocks' market caps are closest to MLM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRU,29,1570292,1 MAA,21,355779,0 LSXMA,41,1344969,2 LSXMK,45,2653274,0 Average,34,1481079,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $1481 million. That figure was $2138 million in MLM's case. The Liberty SiriusXM Group (NASDAQ:LSXMK) is the most popular stock in this table. On the other hand Mid America Apartment Communities Inc (NYSE:MAA) is the least popular one with only 21 bullish hedge fund positions. Martin Marietta Materials, Inc. (NYSE:MLM) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on MLM as the stock returned 5.7% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.