Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
MTS Systems Corporation (NASDAQ:MTSC) has experienced an increase in hedge fund sentiment of late. MTSC was in 12 hedge funds' portfolios at the end of the second quarter of 2019. There were 10 hedge funds in our database with MTSC positions at the end of the previous quarter. Our calculations also showed that MTSC 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 take a look at the recent hedge fund action regarding MTS Systems Corporation (NASDAQ:MTSC).
Hedge fund activity in MTS Systems Corporation (NASDAQ:MTSC)
At Q2's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MTSC over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in MTS Systems Corporation (NASDAQ:MTSC) was held by Ariel Investments, which reported holding $85.5 million worth of stock at the end of March. It was followed by Select Equity Group with a $11.5 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and Marshall Wace LLP.
As one would reasonably expect, specific money managers were leading the bulls' herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the biggest position in MTS Systems Corporation (NASDAQ:MTSC). Marshall Wace LLP had $4.5 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $0.8 million position during the quarter. The only other fund with a new position in the stock is John Overdeck and David Siegel's Two Sigma Advisors.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as MTS Systems Corporation (NASDAQ:MTSC) but similarly valued. These stocks are TTM Technologies, Inc. (NASDAQ:TTMI), Granite Point Mortgage Trust Inc. (NYSE:GPMT), Xperi Corporation (NASDAQ:XPER), and Enviva Partners, LP (NYSE:EVA). This group of stocks' market valuations match MTSC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TTMI,9,18782,-4 GPMT,9,20565,-3 XPER,21,110729,-2 EVA,7,83902,0 Average,11.5,58495,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $126 million in MTSC's case. Xperi Corporation (NASDAQ:XPER) is the most popular stock in this table. On the other hand Enviva Partners, LP (NYSE:EVA) is the least popular one with only 7 bullish hedge fund positions. MTS Systems Corporation (NASDAQ:MTSC) 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 MTSC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MTSC were disappointed as the stock returned -5.1% 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.