Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved, lost a third of its value since the end of July. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 30 S&P 500 stocks among hedge funds at the end of September 2018 yielded an average return of 6.7% year-to-date, vs. a gain of 2.6% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Meritor Inc (NYSE:MTOR).
Is Meritor Inc (NYSE:MTOR) the right pick for your portfolio? The smart money is buying. The number of bullish hedge fund positions went up by 5 in recent months. Our calculations also showed that MTOR isn’t among the 30 most popular stocks among hedge funds. MTOR was in 24 hedge funds’ portfolios at the end of September. There were 19 hedge funds in our database with MTOR holdings at the end of the previous 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to review the key hedge fund action encompassing Meritor Inc (NYSE:MTOR).
What have hedge funds been doing with Meritor Inc (NYSE:MTOR)?
At Q3’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in MTOR heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Meritor Inc (NYSE:MTOR) was held by Glenview Capital, which reported holding $162.5 million worth of stock at the end of September. It was followed by Royce & Associates with a $44.4 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Renaissance Technologies.
Consequently, specific money managers were breaking ground themselves. Hudson Bay Capital Management, managed by Sander Gerber, initiated the largest position in Meritor Inc (NYSE:MTOR). Hudson Bay Capital Management had $7.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $4.7 million position during the quarter. The other funds with brand new MTOR positions are D. E. Shaw’s D E Shaw, Nick Niell’s Arrowgrass Capital Partners, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s check out hedge fund activity in other stocks similar to Meritor Inc (NYSE:MTOR). We will take a look at Mueller Industries, Inc. (NYSE:MLI), Solid Biosciences Inc. (NASDAQ:SLDB), Tupperware Brands Corporation (NYSE:TUP), and Constellium NV (NYSE:CSTM). This group of stocks’ market caps are similar to MTOR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MLI | 15 | 201000 | 7 |
| SLDB | 17 | 463252 | -2 |
| TUP | 22 | 175963 | 2 |
| CSTM | 35 | 439679 | -2 |
| Average | 22.25 | 319974 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $320 million. That figure was $322 million in MTOR’s case. Constellium NV (NYSE:CSTM) is the most popular stock in this table. On the other hand Mueller Industries, Inc. (NYSE:MLI) is the least popular one with only 15 bullish hedge fund positions. Meritor Inc (NYSE:MTOR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CSTM might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
