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Were Hedge Funds Right About Dumping The Manitowoc Company, Inc. (MTW) ?

Reymerlyn Martin

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in fourth quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with technology among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about The Manitowoc Company, Inc. (NYSE:MTW) in this article.

The Manitowoc Company, Inc. (NYSE:MTW) has experienced a decrease in support from the world's most elite money managers lately. MTW was in 14 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 21 hedge funds in our database with MTW holdings at the end of the previous quarter. Our calculations also showed that MTW isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Most Popular Stocks Among Hedge Funds

Let's analyze the key hedge fund action regarding The Manitowoc Company, Inc. (NYSE:MTW).

What have hedge funds been doing with The Manitowoc Company, Inc. (NYSE:MTW)?

Heading into the first quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in MTW a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

MTW_may2019

More specifically, Firefly Value Partners was the largest shareholder of The Manitowoc Company, Inc. (NYSE:MTW), with a stake worth $49.8 million reported as of the end of December. Trailing Firefly Value Partners was Icahn Capital LP, which amassed a stake valued at $23.6 million. Rutabaga Capital Management, Hawk Ridge Management, and Marshall Wace LLP were also very fond of the stock, giving the stock large weights in their portfolios.

Because The Manitowoc Company, Inc. (NYSE:MTW) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of funds that decided to sell off their entire stakes heading into Q3. Intriguingly, John Smith Clark's Southpoint Capital Advisors dumped the biggest investment of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $36 million in stock, and Daniel Lascano's Lomas Capital Management was right behind this move, as the fund cut about $2.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 7 funds heading into Q3.

Let's check out hedge fund activity in other stocks similar to The Manitowoc Company, Inc. (NYSE:MTW). These stocks are Tredegar Corporation (NYSE:TG), Collier Creek Holdings (NYSE:CCH), Diamond Hill Investment Group, Inc. (NASDAQ:DHIL), and Sunlands Technology Group (NYSE:STG). This group of stocks' market caps match MTW's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TG,11,68099,-1 CCH,16,139762,16 DHIL,7,40494,0 STG,2,959,-3 Average,9,62329,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $94 million in MTW's case. Collier Creek Holdings (NYSE:CCH) is the most popular stock in this table. On the other hand Sunlands Technology Group (NYSE:STG) is the least popular one with only 2 bullish hedge fund positions. The Manitowoc Company, Inc. (NYSE:MTW) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on MTW as the stock returned 26% 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.

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