While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Materion Corp (NYSE:MTRN).
Materion Corp (NYSE:MTRN) investors should be aware of an increase in enthusiasm from smart money in recent months. MTRN was in 17 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with MTRN positions at the end of the previous quarter. Our calculations also showed that MTRN 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.
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 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 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.
Mario Gabelli of GAMCO Investors
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s review the fresh hedge fund action encompassing Materion Corp (NYSE:MTRN).
How have hedgies been trading Materion Corp (NYSE:MTRN)?
Heading into the fourth quarter of 2019, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in MTRN a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Materion Corp (NYSE:MTRN) was held by GAMCO Investors, which reported holding $24.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $24 million position. Other investors bullish on the company included Millennium Management, GLG Partners, and Fisher Asset Management. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Materion Corp (NYSE:MTRN), around 0.8% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, designating 0.2 percent of its 13F equity portfolio to MTRN.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Marshall Wace, managed by Paul Marshall and Ian Wace, created the largest position in Materion Corp (NYSE:MTRN). Marshall Wace had $3.7 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $1.3 million position during the quarter. The following funds were also among the new MTRN investors: Peter Muller’s PDT Partners and Minhua Zhang’s Weld Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Materion Corp (NYSE:MTRN) but similarly valued. These stocks are Centennial Resource Development, Inc. (NASDAQ:CDEV), Revlon Inc (NYSE:REV), Hawaiian Holdings, Inc. (NASDAQ:HA), and Kornit Digital Ltd. (NASDAQ:KRNT). This group of stocks’ market values resemble MTRN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CDEV | 28 | 232973 | 11 |
| REV | 33 | 230252 | 2 |
| HA | 11 | 82372 | 0 |
| KRNT | 12 | 53869 | -1 |
| Average | 21 | 149867 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $107 million in MTRN’s case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Hawaiian Holdings, Inc. (NASDAQ:HA) is the least popular one with only 11 bullish hedge fund positions. Materion Corp (NYSE:MTRN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 MTRN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MTRN investors were disappointed as the stock returned -3.9% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
