A market surge in the first quarter, spurred by easing global macroeconomic concerns and Powell's pivot ended up having a positive impact on the markets and many hedge funds as a result. The stocks of smaller companies which were especially hard hit during the fourth quarter slightly outperformed the market during the first quarter. Unfortunately, Trump is unpredictable and volatility returned in the second quarter and smaller-cap stocks went back to selling off. We finished compiling the latest 13F filings to get an idea about what hedge funds are thinking about the overall market as well as individual stocks. In this article we will study the hedge fund sentiment to see how those concerns affected their ownership of MSA Safety Incorporated (NYSE:MSA) during the quarter.
Hedge fund interest in MSA Safety Incorporated (NYSE:MSA) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare MSA to other stocks including Equity Commonwealth (NYSE:EQC), Nomad Foods Limited (NYSE:NOMD), and Plains GP Holdings LP (NYSE:PAGP) to get a better sense of its popularity.
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.
[caption id="attachment_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/caption]
Let's go over the fresh hedge fund action encompassing MSA Safety Incorporated (NYSE:MSA).
What does smart money think about MSA Safety Incorporated (NYSE:MSA)?
Heading into the second quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MSA over the last 15 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
The largest stake in MSA Safety Incorporated (NYSE:MSA) was held by AQR Capital Management, which reported holding $51.2 million worth of stock at the end of March. It was followed by Royce & Associates with a $12.4 million position. Other investors bullish on the company included Millennium Management, GLG Partners, and Renaissance Technologies.
Because MSA Safety Incorporated (NYSE:MSA) has witnessed declining sentiment from the entirety of the hedge funds we track, it's safe to say that there is a sect of money managers that elected to cut their full holdings in the third quarter. It's worth mentioning that Robert Joseph Caruso's Select Equity Group cut the biggest position of the "upper crust" of funds followed by Insider Monkey, totaling an estimated $19.5 million in stock. Peter Muller's fund, PDT Partners, also cut its stock, about $3.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to MSA Safety Incorporated (NYSE:MSA). We will take a look at Equity Commonwealth (NYSE:EQC), Nomad Foods Limited (NYSE:NOMD), Plains GP Holdings LP (NYSE:PAGP), and Sterling Bancorp (NYSE:STL). This group of stocks' market values resemble MSA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQC,21,217004,4 NOMD,42,518787,11 PAGP,16,223677,-2 STL,19,469202,1 Average,24.5,357168,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $357 million. That figure was $103 million in MSA's case. Nomad Foods Limited (NYSE:NOMD) is the most popular stock in this table. On the other hand Plains GP Holdings LP (NYSE:PAGP) is the least popular one with only 16 bullish hedge fund positions. MSA Safety Incorporated (NYSE:MSA) 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately MSA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MSA investors were disappointed as the stock returned 0% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.