Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Mohawk Industries, Inc. (NYSE:MHK).
Mohawk Industries, Inc. (NYSE:MHK) investors should be aware of a decrease in enthusiasm from smart money lately. Our calculations also showed that MHK isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s analyze the recent hedge fund action surrounding Mohawk Industries, Inc. (NYSE:MHK).
How have hedgies been trading Mohawk Industries, Inc. (NYSE:MHK)?
At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -35% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MHK over the last 14 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Eagle Capital Management held the most valuable stake in Mohawk Industries, Inc. (NYSE:MHK), which was worth $518.1 million at the end of the third quarter. On the second spot was First Pacific Advisors LLC which amassed $243.8 million worth of shares. Moreover, Fir Tree, Two Sigma Advisors, and D E Shaw were also bullish on Mohawk Industries, Inc. (NYSE:MHK), allocating a large percentage of their portfolios to this stock.
Due to the fact that Mohawk Industries, Inc. (NYSE:MHK) has experienced falling interest from hedge fund managers, it’s easy to see that there is a sect of money managers who sold off their full holdings in the third quarter. It’s worth mentioning that Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners dumped the largest position of the 700 funds watched by Insider Monkey, worth an estimated $256.4 million in stock, and Keith Meister’s Corvex Capital was right behind this move, as the fund cut about $146.7 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 17 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Mohawk Industries, Inc. (NYSE:MHK) but similarly valued. We will take a look at Newell Brands Inc. (NASDAQ:NWL), New Oriental Education & Tech Group Inc. (NYSE:EDU), Wheaton Precious Metals Corp. (NYSE:WPM), and Fidelity National Financial Inc (NYSE:FNF). This group of stocks’ market valuations resemble MHK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NWL | 30 | 1427456 | -6 |
| EDU | 25 | 621094 | 0 |
| WPM | 21 | 362735 | -1 |
| FNF | 28 | 380210 | -1 |
| Average | 26 | 697874 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $698 million. That figure was $1672 million in MHK’s case. Newell Brands Inc. (NASDAQ:NWL) is the most popular stock in this table. On the other hand Wheaton Precious Metals Corp. (NYSE:WPM) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Mohawk Industries, Inc. (NYSE:MHK) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately MHK wasn’t in this group. Hedge funds that bet on MHK were disappointed as the stock returned 13.5% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
