Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Mayville Engineering Company, Inc. (NYSE:MEC) from the perspective of those elite funds.
Mayville Engineering Company, Inc. (NYSE:MEC) has experienced an increase in support from the world’s most elite money managers lately. MEC was in 11 hedge funds’ portfolios at the end of September. There were 9 hedge funds in our database with MEC positions at the end of the previous quarter. Our calculations also showed that MEC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to go over the latest hedge fund action encompassing Mayville Engineering Company, Inc. (NYSE:MEC).
How are hedge funds trading Mayville Engineering Company, Inc. (NYSE:MEC)?
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MEC over the last 17 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Mayville Engineering Company, Inc. (NYSE:MEC), with a stake worth $7.1 million reported as of the end of September. Trailing Royce & Associates was Driehaus Capital, which amassed a stake valued at $4.2 million. One Fin Capital Management, Gratia Capital, and Skylands 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 Gratia Capital allocated the biggest weight to Mayville Engineering Company, Inc. (NYSE:MEC), around 3.84% of its 13F portfolio. One Fin Capital Management is also relatively very bullish on the stock, earmarking 1.63 percent of its 13F equity portfolio to MEC.
Now, key money managers were leading the bulls’ herd. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the largest position in Mayville Engineering Company, Inc. (NYSE:MEC). Two Sigma Advisors had $0.2 million invested in the company at the end of the quarter. Thomas Bailard’s Bailard Inc also made a $0.1 million investment in the stock during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now review hedge fund activity in other stocks similar to Mayville Engineering Company, Inc. (NYSE:MEC). We will take a look at Venator Materials PLC (NYSE:VNTR), PCB Bancorp (NASDAQ:PCB), Oil-Dri Corporation of America (NYSE:ODC), and Stellus Capital Investment Corporation (NYSE:SCM). This group of stocks’ market values resemble MEC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VNTR | 17 | 35827 | -1 |
| PCB | 4 | 27172 | 2 |
| ODC | 4 | 32094 | 1 |
| SCM | 4 | 5946 | 0 |
| Average | 7.25 | 25260 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $19 million in MEC’s case. Venator Materials PLC (NYSE:VNTR) is the most popular stock in this table. On the other hand PCB Bancorp (NASDAQ:PCB) is the least popular one with only 4 bullish hedge fund positions. Mayville Engineering Company, Inc. (NYSE:MEC) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MEC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MEC were disappointed as the stock returned -29.1% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
