Did Hedge Funds Make The Right Call On MRC Global Inc (MRC)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards MRC Global Inc (NYSE:MRC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is MRC Global Inc (NYSE:MRC) a buy here? Investors who are in the know were reducing their bets on the stock. The number of long hedge fund bets fell by 3 in recent months. Our calculations also showed that MRC 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). MRC was in 17 hedge funds’ portfolios at the end of March. There were 20 hedge funds in our database with MRC holdings at the end of the previous quarter.

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

In the eyes of most traders, hedge funds are seen as underperforming, old financial vehicles of the past. While there are over 8000 funds trading at present, We choose to focus on the masters of this club, around 850 funds. These money managers orchestrate the majority of the smart money’s total asset base, and by shadowing their highest performing stock picks, Insider Monkey has found various investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a gander at the recent hedge fund action encompassing MRC Global Inc (NYSE:MRC).

How have hedgies been trading MRC Global Inc (NYSE:MRC)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MRC over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in MRC Global Inc (NYSE:MRC), which was worth $7.4 million at the end of the third quarter. On the second spot was Millennium Management which amassed $3.7 million worth of shares. Impax Asset Management, Renaissance Technologies, and PDT Partners 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 PDT Partners allocated the biggest weight to MRC Global Inc (NYSE:MRC), around 0.11% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, earmarking 0.04 percent of its 13F equity portfolio to MRC.

Since MRC Global Inc (NYSE:MRC) has faced bearish sentiment from the smart money, it’s easy to see that there is a sect of funds that elected to cut their entire stakes in the first quarter. It’s worth mentioning that Jonathan Barrett and Paul Segal’s Luminus Management sold off the biggest position of the 750 funds followed by Insider Monkey, valued at an estimated $7.2 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $0.9 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to MRC Global Inc (NYSE:MRC). These stocks are Pitney Bowes Inc. (NYSE:PBI), Valhi, Inc. (NYSE:VHI), CytomX Therapeutics, Inc. (NASDAQ:CTMX), and Rosetta Stone Inc (NYSE:RST). This group of stocks’ market values are similar to MRC’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $20 million in MRC’s case. CytomX Therapeutics, Inc. (NASDAQ:CTMX) is the most popular stock in this table. On the other hand Valhi, Inc. (NYSE:VHI) is the least popular one with only 5 bullish hedge fund positions. MRC Global Inc (NYSE:MRC) 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on MRC as the stock returned 47.7% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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