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 Co (NASDAQ:MTRX) from the perspective of those elite funds.
Matrix Service Co (NASDAQ:MTRX) investors should pay attention to a decrease in hedge fund sentiment of late. Our calculations also showed that MTRX isn’t among the 30 most popular stocks among hedge funds.
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.
We’re going to take a peek at the recent hedge fund action encompassing Matrix Service Co (NASDAQ:MTRX).
What have hedge funds been doing with Matrix Service Co (NASDAQ:MTRX)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MTRX over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, GLG Partners held the most valuable stake in Matrix Service Co (NASDAQ:MTRX), which was worth $9.1 million at the end of the first quarter. On the second spot was AQR Capital Management which amassed $5.8 million worth of shares. Moreover, Rutabaga Capital Management, D E Shaw, and Two Sigma Advisors were also bullish on Matrix Service Co (NASDAQ:MTRX), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Matrix Service Co (NASDAQ:MTRX) has witnessed declining sentiment from the smart money, we can see that there is a sect of money managers that elected to cut their entire stakes heading into Q3. At the top of the heap, Israel Englander’s Millennium Management said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, comprising about $2.9 million in stock. Andrew Feldstein and Stephen Siderow’s fund, Blue Mountain Capital, also dumped its stock, about $0.8 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 4 funds heading into Q3.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Matrix Service Co (NASDAQ:MTRX) but similarly valued. These stocks are Heritage Commerce Corp. (NASDAQ:HTBK), First Community Bancshares Inc (NASDAQ:FCBC), ArQule, Inc. (NASDAQ:ARQL), and Veeco Instruments Inc. (NASDAQ:VECO). This group of stocks’ market caps resemble MTRX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HTBK | 7 | 21498 | -2 |
| FCBC | 4 | 9920 | 1 |
| ARQL | 15 | 118564 | 1 |
| VECO | 10 | 123001 | 0 |
| Average | 9 | 68246 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 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. ArQule, Inc. (NASDAQ:ARQL) is the most popular stock in this table. On the other hand First Community Bancshares Inc (NASDAQ:FCBC) is the least popular one with only 4 bullish hedge fund positions. Matrix Service Co (NASDAQ:MTRX) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 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 -2.2% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
