The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Matrix Service Company (NASDAQ:MTRX) from the perspective of those elite funds.
Matrix Service Company (NASDAQ:MTRX) was in 14 hedge funds’ portfolios at the end of June. MTRX has experienced a decrease in hedge fund sentiment of late. There were 15 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 (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the new hedge fund action encompassing Matrix Service Company (NASDAQ:MTRX).
How have hedgies been trading Matrix Service Company (NASDAQ:MTRX)?
Heading into the third quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MTRX over the last 16 quarters. 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 Matrix Service Company (NASDAQ:MTRX) was held by GLG Partners, which reported holding $7.8 million worth of stock at the end of March. It was followed by Rutabaga Capital Management with a $5.1 million position. Other investors bullish on the company included D E Shaw, AQR Capital Management, and Millennium Management.
Since Matrix Service Company (NASDAQ:MTRX) has experienced bearish sentiment from the smart money, it’s easy to see that there exists a select few fund managers that elected to cut their positions entirely by the end of the second quarter. Interestingly, Renaissance Technologies dropped the largest stake of the 750 funds tracked by Insider Monkey, comprising about $1.4 million in call options. Matthew Hulsizer’s fund, PEAK6 Capital Management, also dropped its call options, about $0.5 million worth. These moves are interesting, as total hedge fund interest was cut by 1 funds by the end of the second quarter.
Let’s go over hedge fund activity in other stocks similar to Matrix Service Company (NASDAQ:MTRX). We will take a look at Echo Global Logistics, Inc. (NASDAQ:ECHO), Ribbon Communications Inc. (NASDAQ:RBBN), QCR Holdings, Inc. (NASDAQ:QCRH), and Diamond S Shipping Inc. (NYSE:DSSI). This group of stocks’ market values match MTRX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ECHO | 12 | 19323 | -1 |
| RBBN | 11 | 36379 | -1 |
| QCRH | 8 | 65558 | -2 |
| DSSI | 11 | 149769 | 4 |
| Average | 10.5 | 67757 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $68 million. That figure was $32 million in MTRX’s case. Echo Global Logistics, Inc. (NASDAQ:ECHO) is the most popular stock in this table. On the other hand QCR Holdings, Inc. (NASDAQ:QCRH) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Matrix Service Company (NASDAQ:MTRX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MTRX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MTRX were disappointed as the stock returned -15.4% during the third 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
