Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. 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 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Masco Corporation (NYSE:MAS) investors should pay attention to an increase in support from the world’s most elite money managers lately. Our calculations also showed that MAS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a glance at the new hedge fund action surrounding Masco Corporation (NYSE:MAS).
What have hedge funds been doing with Masco Corporation (NYSE:MAS)?
At Q3’s end, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from one quarter earlier. On the other hand, there were a total of 35 hedge funds with a bullish position in MAS a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Two Sigma Advisors was the largest shareholder of Masco Corporation (NYSE:MAS), with a stake worth $188.8 million reported as of the end of September. Trailing Two Sigma Advisors was AQR Capital Management, which amassed a stake valued at $188.5 million. Adage Capital Management, Scopus Asset 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 Water Asset Management allocated the biggest weight to Masco Corporation (NYSE:MAS), around 2.82% of its 13F portfolio. Thames Capital Management is also relatively very bullish on the stock, setting aside 2.56 percent of its 13F equity portfolio to MAS.
Now, key money managers were leading the bulls’ herd. Columbus Circle Investors, managed by Principal Global Investors, created the largest position in Masco Corporation (NYSE:MAS). Columbus Circle Investors had $30.5 million invested in the company at the end of the quarter. Zach Schreiber’s Point State Capital also made a $25 million investment in the stock during the quarter. The other funds with brand new MAS positions are Ryan Caldwell’s Chiron Investment Management, Jay Genzer’s Thames Capital Management, and Matthew Mark’s Jet Capital Investors.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Masco Corporation (NYSE:MAS) but similarly valued. These stocks are American Airlines Group Inc (NASDAQ:AAL), Lyft, Inc. (NASDAQ:LYFT), DENTSPLY SIRONA Inc. (NASDAQ:XRAY), and BanColombia S.A. (NYSE:CIB). This group of stocks’ market valuations are similar to MAS’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AAL | 38 | 1781432 | 4 |
| LYFT | 33 | 880680 | -4 |
| XRAY | 28 | 1628924 | -1 |
| CIB | 11 | 166123 | 1 |
| Average | 27.5 | 1114290 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $1114 million. That figure was $1008 million in MAS’s case. American Airlines Group Inc (NASDAQ:AAL) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Masco Corporation (NYSE:MAS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on MAS as the stock returned 65.7% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
