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Were Hedge Funds Right About Herman Miller, Inc. (MLHR)?

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In this article we will check out the progression of hedge fund sentiment towards Herman Miller, Inc. (NASDAQ:MLHR) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Herman Miller, Inc. (NASDAQ:MLHR) a great stock to buy now? Money managers were getting less bullish. The number of bullish hedge fund bets dropped by 3 in recent months. Herman Miller, Inc. (NASDAQ:MLHR) was in 18 hedge funds' portfolios at the end of March. The all time high for this statistic is 28. Our calculations also showed that MLHR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 21 hedge funds in our database with MLHR positions at the end of the fourth quarter.

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 S&P 500 ETFs by 115 percentage points since March 2017 (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.

Fred DiSanto Ancora Advisors
Fred DiSanto Ancora Advisors

Fred DiSanto of Ancora Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we're going to take a gander at the fresh hedge fund action surrounding Herman Miller, Inc. (NASDAQ:MLHR).

Do Hedge Funds Think MLHR Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MLHR over the last 23 quarters. With hedgies' capital changing hands, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is MLHR A Good Stock To Buy?
Is MLHR A Good Stock To Buy?

More specifically, AQR Capital Management was the largest shareholder of Herman Miller, Inc. (NASDAQ:MLHR), with a stake worth $37.7 million reported as of the end of March. Trailing AQR Capital Management was Millennium Management, which amassed a stake valued at $9.7 million. Royce & Associates, Two Sigma Advisors, and Ancora Advisors 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 Arjuna Capital allocated the biggest weight to Herman Miller, Inc. (NASDAQ:MLHR), around 0.84% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to MLHR.

Since Herman Miller, Inc. (NASDAQ:MLHR) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of funds that decided to sell off their entire stakes in the first quarter. It's worth mentioning that Renaissance Technologies sold off the largest stake of the 750 funds watched by Insider Monkey, totaling an estimated $2.4 million in stock. Greg Eisner's fund, Engineers Gate Manager, also cut its stock, about $1.2 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds in the first quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Herman Miller, Inc. (NASDAQ:MLHR) but similarly valued. We will take a look at WesBanco, Inc. (NASDAQ:WSBC), MYT Netherlands Parent B.V. (NYSE:MYTE), Magellan Health Inc (NASDAQ:MGLN), Hims & Hers Health, Inc. (NYSE:HIMS), Cinemark Holdings, Inc. (NYSE:CNK), PubMatic, Inc. (NASDAQ:PUBM), and Crescent Point Energy Corp (NYSE:CPG). All of these stocks' market caps are similar to MLHR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WSBC,16,43130,6 MYTE,18,97733,18 MGLN,24,627538,2 HIMS,18,317456,18 CNK,30,378007,4 PUBM,5,63796,-5 CPG,13,102717,1 Average,17.7,232911,6.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.7 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $91 million in MLHR's case. Cinemark Holdings, Inc. (NYSE:CNK) is the most popular stock in this table. On the other hand PubMatic, Inc. (NASDAQ:PUBM) is the least popular one with only 5 bullish hedge fund positions. Herman Miller, Inc. (NASDAQ:MLHR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MLHR is 47.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately MLHR wasn't nearly as popular as these 5 stocks and hedge funds that were betting on MLHR were disappointed as the stock returned 9.2% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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