We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Masco Corporation (NYSE:MAS) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Masco Corporation (NYSE:MAS) has seen a decrease in hedge fund sentiment lately. MAS was in 45 hedge funds' portfolios at the end of December. There were 51 hedge funds in our database with MAS holdings at the end of the previous quarter. Our calculations also showed that MAS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you'd ask most traders, hedge funds are seen as underperforming, outdated investment vehicles of the past. While there are over 8000 funds with their doors open at present, Our experts choose to focus on the upper echelon of this club, approximately 850 funds. It is estimated that this group of investors oversee the lion's share of all hedge funds' total capital, and by monitoring their first-class investments, Insider Monkey has unsheathed numerous investment strategies that have historically outpaced the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_30621" align="aligncenter" width="400"] Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a peek at the recent hedge fund action encompassing Masco Corporation (NYSE:MAS).
How have hedgies been trading Masco Corporation (NYSE:MAS)?
Heading into the first quarter of 2020, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MAS over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Two Sigma Advisors held the most valuable stake in Masco Corporation (NYSE:MAS), which was worth $180.4 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $163.2 million worth of shares. Adage Capital Management, Scopus Asset Management, and Millennium Management 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 SAYA Management allocated the biggest weight to Masco Corporation (NYSE:MAS), around 6.72% of its 13F portfolio. Water Asset Management is also relatively very bullish on the stock, dishing out 5.1 percent of its 13F equity portfolio to MAS.
Due to the fact that Masco Corporation (NYSE:MAS) has faced a decline in interest from the smart money, we can see that there exists a select few fund managers that decided to sell off their full holdings last quarter. Intriguingly, Zach Schreiber's Point State Capital cut the largest investment of all the hedgies watched by Insider Monkey, totaling about $25 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund said goodbye to about $15.5 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 6 funds last quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Masco Corporation (NYSE:MAS) but similarly valued. These stocks are CenterPoint Energy, Inc. (NYSE:CNP), UDR, Inc. (NYSE:UDR), Extra Space Storage, Inc. (NYSE:EXR), and Sasol Limited (NYSE:SSL). This group of stocks' market values are similar to MAS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNP,30,1326987,-1 UDR,21,360515,-4 EXR,28,206461,-2 SSL,7,16214,-2 Average,21.5,477544,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $478 million. That figure was $948 million in MAS's case. CenterPoint Energy, Inc. (NYSE:CNP) is the most popular stock in this table. On the other hand Sasol Limited (NYSE:SSL) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Masco Corporation (NYSE:MAS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately MAS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MAS were disappointed as the stock returned -26.6% during the first two and a half months of 2020 (through March 16th) 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.