We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Masonite International Corp (NYSE:DOOR) and determine whether hedge funds skillfully traded this stock.
Is Masonite International Corp (NYSE:DOOR) the right pick for your portfolio? Hedge funds were in an optimistic mood. The number of long hedge fund positions advanced by 1 in recent months. Masonite International Corp (NYSE:DOOR) was in 27 hedge funds’ portfolios at the end of June. The all time high for this statistics is 31. Our calculations also showed that DOOR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
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 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.
Kevin Oram of Praesidium Investment Management Company
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to analyze the fresh hedge fund action encompassing Masonite International Corp (NYSE:DOOR).
What does smart money think about Masonite International Corp (NYSE:DOOR)?
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the first quarter of 2020. On the other hand, there were a total of 19 hedge funds with a bullish position in DOOR a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, Praesidium Investment Management Company held the most valuable stake in Masonite International Corp (NYSE:DOOR), which was worth $155.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $36.1 million worth of shares. Pzena Investment Management, Sunriver Management, and Arrowstreet Capital 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 Praesidium Investment Management Company allocated the biggest weight to Masonite International Corp (NYSE:DOOR), around 10.1% of its 13F portfolio. BeaconLight Capital is also relatively very bullish on the stock, setting aside 6.93 percent of its 13F equity portfolio to DOOR.
With a general bullishness amongst the heavyweights, key money managers have jumped into Masonite International Corp (NYSE:DOOR) headfirst. Theleme Partners, managed by Patrick Degorce, established the most valuable position in Masonite International Corp (NYSE:DOOR). Theleme Partners had $20.6 million invested in the company at the end of the quarter. Richard S. Meisenberg’s ACK Asset Management also made a $6.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, and Michael Gelband’s ExodusPoint Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Masonite International Corp (NYSE:DOOR) but similarly valued. These stocks are Innospec Inc. (NASDAQ:IOSP), Albany International Corp. (NYSE:AIN), Tenet Healthcare Corp (NYSE:THC), Prospect Capital Corporation (NASDAQ:PSEC), Cardlytics, Inc. (NASDAQ:CDLX), Prestige Consumer Healthcare Inc. (NYSE:PBH), and Central Garden & Pet Co (NASDAQ:CENT). This group of stocks’ market values are similar to DOOR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IOSP | 18 | 89989 | 4 |
| AIN | 19 | 46345 | 1 |
| THC | 28 | 582586 | -7 |
| PSEC | 7 | 22588 | -1 |
| CDLX | 27 | 588778 | 1 |
| PBH | 20 | 118784 | 3 |
| CENT | 15 | 138827 | -4 |
| Average | 19.1 | 226842 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $227 million. That figure was $426 million in DOOR’s case. Tenet Healthcare Corp (NYSE:THC) is the most popular stock in this table. On the other hand Prospect Capital Corporation (NASDAQ:PSEC) is the least popular one with only 7 bullish hedge fund positions. Masonite International Corp (NYSE:DOOR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DOOR is 79.7. 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. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on DOOR as the stock returned 18.3% during Q3 (through September 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
