Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Matrix Service Company (NASDAQ:MTRX) has experienced an increase in hedge fund sentiment recently. MTRX was in 19 hedge funds’ portfolios at the end of the third quarter of 2019. There were 14 hedge funds in our database with MTRX positions at the end of the previous quarter. Our calculations also showed that MTRX 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.
Noam Gottesman of GLG Partners
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the new hedge fund action regarding Matrix Service Company (NASDAQ:MTRX).
How have hedgies been trading Matrix Service Company (NASDAQ:MTRX)?
Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in MTRX 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.
More specifically, Rutabaga Capital Management was the largest shareholder of Matrix Service Company (NASDAQ:MTRX), with a stake worth $4.9 million reported as of the end of September. Trailing Rutabaga Capital Management was D E Shaw, which amassed a stake valued at $3.9 million. Citadel Investment Group, AQR Capital Management, and GLG 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 Rutabaga Capital Management allocated the biggest weight to Matrix Service Company (NASDAQ:MTRX), around 1.72% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, setting aside 0.46 percent of its 13F equity portfolio to MTRX.
Consequently, specific money managers have been driving this bullishness. Renaissance Technologies established the most valuable position in Matrix Service Company (NASDAQ:MTRX). Renaissance Technologies had $1 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $0.8 million position during the quarter. The other funds with brand new MTRX positions are Paul Marshall and Ian Wace’s Marshall Wace, Mike Vranos’s Ellington, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Matrix Service Company (NASDAQ:MTRX) but similarly valued. We will take a look at Nexgen Energy Ltd. (NYSE:NXE), The Rubicon Project Inc (NYSE:RUBI), Bonanza Creek Energy Inc (NYSE:BCEI), and Beazer Homes USA, Inc. (NYSE:BZH). All of these stocks’ market caps match MTRX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NXE | 8 | 20023 | 0 |
| RUBI | 20 | 77237 | 4 |
| BCEI | 21 | 144775 | 6 |
| BZH | 15 | 49612 | 8 |
| Average | 16 | 72912 | 4.5 |
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 $73 million. That figure was $28 million in MTRX’s case. Bonanza Creek Energy Inc (NYSE:BCEI) is the most popular stock in this table. On the other hand Nexgen Energy Ltd. (NYSE:NXE) is the least popular one with only 8 bullish hedge fund positions. Matrix Service Company (NASDAQ:MTRX) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on MTRX as the stock returned 22.2% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
