Should You Avoid Malibu Boats Inc (MBUU)?

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 over the past few 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 hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards Malibu Boats Inc (NASDAQ:MBUU).

Malibu Boats Inc (NASDAQ:MBUU) has seen a decrease in hedge fund sentiment lately. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as BioTime, Inc. (NYSEMKT:BTX), QuinStreet Inc (NASDAQ:QNST), and ChannelAdvisor Corp (NYSE:ECOM) to gather more data points.

In the financial world, there are plenty of methods shareholders can use to analyze publicly traded companies. A couple of the less known methods are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the elite hedge fund managers can outperform their index-focused peers by a solid amount (see the details here).

With all of this in mind, let’s take a gander at the recent action encompassing Malibu Boats Inc (NASDAQ:MBUU).

How are hedge funds trading Malibu Boats Inc (NASDAQ:MBUU)?

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, David Nierenberg’s Nierenberg Investment Management has the largest position in Malibu Boats Inc (NASDAQ:MBUU), worth close to $7.4 million, corresponding to 10.8% of its total 13F portfolio. The second most bullish fund manager is Scopus Asset Management, managed by Alexander Mitchell, which holds an $5.7 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions consist of Chuck Royce’s Royce & Associates, Joe DiMenna’s ZWEIG DIMENNA PARTNERS and Ken Griffin’s Citadel Investment Group.

Due to the fact that Malibu Boats Inc (NASDAQ:MBUU) has experienced a bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of fund managers that decided to sell off their positions entirely by the end of the third quarter. At the top of the heap, Jeffrey Moskowitz’s Harvey Partners sold off the biggest position of the 700 funds followed by Insider Monkey, worth about $4.4 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund cut about $0.5 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Malibu Boats Inc (NASDAQ:MBUU) but similarly valued. These stocks are BioTime, Inc. (NYSEMKT:BTX), QuinStreet Inc (NASDAQ:QNST), ChannelAdvisor Corp (NYSE:ECOM), and Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). This group of stocks’ market values match MBUU’s market value.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $28 million in MBUU’s case. QuinStreet Inc (NASDAQ:QNST) is the most popular stock in this table. On the other hand ChannelAdvisor Corp (NYSE:ECOM) is the least popular one with only 7 bullish hedge fund positions. Malibu Boats Inc (NASDAQ:MBUU) 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. In this regard QNST might be a better candidate to consider a long position.