Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. With this in mind let’s see whether MSA Safety Incorporated (NYSE:MSA) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
MSA Safety Incorporated (NYSE:MSA) was in 15 hedge funds’ portfolios at the end of December. MSA has seen an increase in activity from the world’s largest hedge funds lately. There were 10 hedge funds in our database with MSA positions at the end of the previous quarter. Our calculations also showed that MSA 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the recent hedge fund action regarding MSA Safety Incorporated (NYSE:MSA).
How are hedge funds trading MSA Safety Incorporated (NYSE:MSA)?
At Q4’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MSA over the last 18 quarters. So, let’s review 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 MSA Safety Incorporated (NYSE:MSA), with a stake worth $13.2 million reported as of the end of September. Trailing Royce & Associates was AQR Capital Management, which amassed a stake valued at $12.6 million. GLG Partners, Driehaus Capital, and Impax Asset 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 Royce & Associates allocated the biggest weight to MSA Safety Incorporated (NYSE:MSA), around 0.12% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, setting aside 0.11 percent of its 13F equity portfolio to MSA.
Consequently, some big names were leading the bulls’ herd. Driehaus Capital, managed by Richard Driehaus, assembled the most valuable position in MSA Safety Incorporated (NYSE:MSA). Driehaus Capital had $2.4 million invested in the company at the end of the quarter. Ian Simm’s Impax Asset Management also initiated a $2.4 million position during the quarter. The other funds with brand new MSA positions are Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, Dmitry Balyasny’s Balyasny Asset Management, and Donald Sussman’s Paloma Partners.
Let’s now review hedge fund activity in other stocks similar to MSA Safety Incorporated (NYSE:MSA). We will take a look at Brunswick Corporation (NYSE:BC), Telecom Argentina S.A. (NYSE:TEO), Millicom International Cellular S.A. (NASDAQ:TIGO), and Azul S.A. (NYSE:AZUL). This group of stocks’ market caps resemble MSA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BC | 36 | 675096 | 7 |
| TEO | 5 | 37708 | 1 |
| TIGO | 7 | 92775 | 1 |
| AZUL | 11 | 194860 | -1 |
| Average | 14.75 | 250110 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $44 million in MSA’s case. Brunswick Corporation (NYSE:BC) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 5 bullish hedge fund positions. MSA Safety Incorporated (NYSE:MSA) 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. 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 MSA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MSA were disappointed as the stock returned -23.1% 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 many of these stocks already outperformed the market so far this year.
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.
