Did Hedge Funds Make The Right Call On Masimo Corporation (MASI) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Masimo Corporation (NASDAQ:MASI) and determine whether the smart money was really smart about this stock.

Masimo Corporation (NASDAQ:MASI) has seen an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that MASI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind let’s take a peek at the recent hedge fund action encompassing Masimo Corporation (NASDAQ:MASI).

How have hedgies been trading Masimo Corporation (NASDAQ:MASI)?

At Q1’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in MASI a year ago. 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, AQR Capital Management held the most valuable stake in Masimo Corporation (NASDAQ:MASI), which was worth $40.4 million at the end of the third quarter. On the second spot was GLG Partners which amassed $19 million worth of shares. GAMCO Investors, Millennium Management, and Royce & Associates 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 Blue Whale Capital allocated the biggest weight to Masimo Corporation (NASDAQ:MASI), around 2.82% of its 13F portfolio. Integral Health Asset Management is also relatively very bullish on the stock, earmarking 2.73 percent of its 13F equity portfolio to MASI.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Integral Health Asset Management, managed by Bhagwan Jay Rao, initiated the most outsized position in Masimo Corporation (NASDAQ:MASI). Integral Health Asset Management had $6.2 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also made a $1.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Andrew Dalrymple and Barry McCorkell’s Aubrey Capital Management, and Brian Ashford-Russell and Tim Woolley’s Polar Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Masimo Corporation (NASDAQ:MASI) but similarly valued. We will take a look at BeiGene, Ltd. (NASDAQ:BGNE), Qiagen NV (NASDAQ:QGEN), NVR, Inc. (NYSE:NVR), and Open Text Corporation (NASDAQ:OTEX). This group of stocks’ market valuations are similar to MASI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $909 million. That figure was $157 million in MASI’s case. NVR, Inc. (NYSE:NVR) is the most popular stock in this table. On the other hand BeiGene, Ltd. (NASDAQ:BGNE) is the least popular one with only 11 bullish hedge fund positions. Masimo Corporation (NASDAQ:MASI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on MASI as the stock returned 28.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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