The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded MSC Industrial Direct Co Inc (NYSE:MSM) based on those filings.
MSC Industrial Direct Co Inc (NYSE:MSM) was in 23 hedge funds’ portfolios at the end of the first quarter of 2020. MSM investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 30 hedge funds in our database with MSM positions at the end of the previous quarter. Our calculations also showed that MSM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Donald Yacktman of Yacktman Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the new hedge fund action regarding MSC Industrial Direct Co Inc (NYSE:MSM).
What does smart money think about MSC Industrial Direct Co Inc (NYSE:MSM)?
At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from the fourth quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in MSM a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Yacktman Asset Management, managed by Donald Yacktman, holds the largest position in MSC Industrial Direct Co Inc (NYSE:MSM). Yacktman Asset Management has a $84.2 million position in the stock, comprising 1.4% of its 13F portfolio. The second largest stake is held by Paradice Investment Management, led by David Paradice, holding a $46.6 million position; 5.2% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish encompass Clint Carlson’s Carlson Capital, Richard S. Pzena’s Pzena Investment Management and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Paradice Investment Management allocated the biggest weight to MSC Industrial Direct Co Inc (NYSE:MSM), around 5.17% of its 13F portfolio. Value Holdings LP is also relatively very bullish on the stock, setting aside 2.58 percent of its 13F equity portfolio to MSM.
Since MSC Industrial Direct Co Inc (NYSE:MSM) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedge funds that decided to sell off their entire stakes in the first quarter. It’s worth mentioning that Israel Englander’s Millennium Management said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $10.6 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund dumped about $2.4 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 7 funds in the first quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as MSC Industrial Direct Co Inc (NYSE:MSM) but similarly valued. We will take a look at SLM Corp (NASDAQ:SLM), Grupo Aeroportuario del Pacifico (NYSE:PAC), PNM Resources, Inc. (NYSE:PNM), and TechnipFMC plc (NYSE:FTI). This group of stocks’ market caps match MSM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SLM | 27 | 430376 | -12 |
| PAC | 5 | 66063 | -2 |
| PNM | 22 | 392548 | 3 |
| FTI | 29 | 395181 | -5 |
| Average | 20.75 | 321042 | -4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $321 million. That figure was $240 million in MSM’s case. TechnipFMC plc (NYSE:FTI) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico (NYSE:PAC) is the least popular one with only 5 bullish hedge fund positions. MSC Industrial Direct Co Inc (NYSE:MSM) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on MSM as the stock returned 36.1% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Msc Industrial Direct Co Inc (NYSE:MSM)
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Disclosure: None. This article was originally published at Insider Monkey.
