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Were Hedge Funds Right About Flocking Into MKS Instruments, Inc. (MKSI) ?

Nina Todic

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards MKS Instruments, Inc. (NASDAQ:MKSI).

MKS Instruments, Inc. (NASDAQ:MKSI) has seen an increase in activity from the world's largest hedge funds recently. MKSI was in 30 hedge funds' portfolios at the end of December. There were 25 hedge funds in our database with MKSI holdings at the end of the previous quarter. Our calculations also showed that mksi isn't among the 30 most popular stocks among hedge funds.

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 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.

RENAISSANCE TECHNOLOGIES

We're going to view the recent hedge fund action surrounding MKS Instruments, Inc. (NASDAQ:MKSI).

Hedge fund activity in MKS Instruments, Inc. (NASDAQ:MKSI)

At Q4's end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in MKSI a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

No of Hedge Funds With MKSI Positions

The largest stake in MKS Instruments, Inc. (NASDAQ:MKSI) was held by Renaissance Technologies, which reported holding $137.7 million worth of stock at the end of September. It was followed by Royce & Associates with a $90.6 million position. Other investors bullish on the company included AQR Capital Management, Fisher Asset Management, and D E Shaw.

Now, key money managers were leading the bulls' herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most outsized position in MKS Instruments, Inc. (NASDAQ:MKSI). Marshall Wace LLP had $9.2 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also made a $4 million investment in the stock during the quarter. The other funds with brand new MKSI positions are Eric Sprott's Sprott Asset Management, Matthew Tewksbury's Stevens Capital Management, and Dmitry Balyasny's Balyasny Asset Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as MKS Instruments, Inc. (NASDAQ:MKSI) but similarly valued. These stocks are Trex Company, Inc. (NYSE:TREX), Teladoc Health, Inc. (NYSE:TDOC), CVR Energy, Inc. (NYSE:CVI), and Helen of Troy Limited (NASDAQ:HELE). All of these stocks' market caps are closest to MKSI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TREX,14,57358,-3 TDOC,19,139059,0 CVI,22,2577069,1 HELE,17,134005,5 Average,18,726873,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $727 million. That figure was $448 million in MKSI's case. CVR Energy, Inc. (NYSE:CVI) is the most popular stock in this table. On the other hand Trex Company, Inc. (NYSE:TREX) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks MKS Instruments, Inc. (NASDAQ:MKSI) is more popular among hedge funds. 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 MKSI as the stock returned 55.3% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.

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