We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether MKS Instruments, Inc. (NASDAQ:MKSI) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
MKS Instruments, Inc. (NASDAQ:MKSI) investors should be aware of an increase in hedge fund interest in recent months. MKSI was in 28 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 18 hedge funds in our database with MKSI positions at the end of the previous quarter. Our calculations also showed that MKSI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the fresh hedge fund action encompassing MKS Instruments, Inc. (NASDAQ:MKSI).
What does smart money think about MKS Instruments, Inc. (NASDAQ:MKSI)?
At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 56% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in MKSI a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of MKS Instruments, Inc. (NASDAQ:MKSI), with a stake worth $112.3 million reported as of the end of September. Trailing Royce & Associates was Fisher Asset Management, which amassed a stake valued at $79.4 million. Renaissance Technologies, Point72 Asset Management, and Shelter Haven Capital Management 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 Shelter Haven Capital Management allocated the biggest weight to MKS Instruments, Inc. (NASDAQ:MKSI), around 17.59% of its 13F portfolio. BeaconLight Capital is also relatively very bullish on the stock, designating 2.5 percent of its 13F equity portfolio to MKSI.
With a general bullishness amongst the heavyweights, key money managers have jumped into MKS Instruments, Inc. (NASDAQ:MKSI) headfirst. Shelter Haven Capital Management, managed by Jerry Kochanski, established the most valuable position in MKS Instruments, Inc. (NASDAQ:MKSI). Shelter Haven Capital Management had $36.8 million invested in the company at the end of the quarter. Principal Global Investors’s Columbus Circle Investors also made a $16.5 million investment in the stock during the quarter. The following funds were also among the new MKSI investors: Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, Ken Griffin’s Citadel Investment Group, and Richard Driehaus’s Driehaus Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as MKS Instruments, Inc. (NASDAQ:MKSI) but similarly valued. These stocks are Parsley Energy Inc (NYSE:PE), Wyndham Hotels & Resorts, Inc. (NYSE:WH), ADT Corp (NYSE:ADT), and MDU Resources Group Inc (NYSE:MDU). This group of stocks’ market caps are similar to MKSI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PE | 52 | 1041267 | 4 |
| WH | 44 | 960213 | 4 |
| ADT | 21 | 193550 | 5 |
| MDU | 30 | 355457 | 7 |
| Average | 36.75 | 637622 | 5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.75 hedge funds with bullish positions and the average amount invested in these stocks was $638 million. That figure was $445 million in MKSI’s case. Parsley Energy Inc (NYSE:PE) is the most popular stock in this table. On the other hand ADT Corp (NYSE:ADT) is the least popular one with only 21 bullish hedge fund positions. MKS Instruments, Inc. (NASDAQ:MKSI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately MKSI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MKSI investors were disappointed as the stock returned -25.5% during the same time 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 most of these stocks already outperformed the market in Q1.
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.
