What Do Hedge Funds Think of Methode Electronics Inc. (MEI)?

The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards Methode Electronics Inc. (NYSE:MEI) and see how it was affected.

Is Methode Electronics Inc. (NYSE:MEI) worth your attention right now? Prominent investors are in a pessimistic mood. The number of long hedge fund positions went down by 1 recently. 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 Mueller Water Products, Inc. (NYSE:MWA), Essendant Inc (NASDAQ:ESND), and Chemical Financial Corporation (NASDAQ:CHFC) to gather more data points.

According to most shareholders, hedge funds are viewed as unimportant, outdated financial vehicles of yesteryear. While there are more than 8000 funds with their doors open today, Our researchers choose to focus on the aristocrats of this group, approximately 700 funds. Most estimates calculate that this group of people have their hands on the lion’s share of all hedge funds’ total asset base, and by observing their top equity investments, Insider Monkey has revealed various investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Keeping this in mind, let’s take a gander at the fresh action regarding Methode Electronics Inc. (NYSE:MEI).

What have hedge funds been doing with Methode Electronics Inc. (NYSE:MEI)?

Heading into Q4, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the largest position in Methode Electronics Inc. (NYSE:MEI). Renaissance Technologies has a $25.6 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, managed by Chuck Royce, which holds a $18 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions contain Joel Greenblatt’s Gotham Asset Management, Paul Marshall and Ian Wace’s Marshall Wace LLP and Bill Miller’s Legg Mason Capital Management.

Since Methode Electronics Inc. (NYSE:MEI) has faced declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of fund managers that slashed their full holdings in the third quarter. At the top of the heap, Neil Chriss’ Hutchin Hill Capital sold off the biggest stake of the 700 funds followed by Insider Monkey, totaling about $2.4 million in stock. Michael Platt and William Reeves’s fund, BlueCrest Capital Mgmt, also cut its stock, about $1.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Methode Electronics Inc. (NYSE:MEI). These stocks are Mueller Water Products, Inc. (NYSE:MWA), Essendant Inc (NASDAQ:ESND), Chemical Financial Corporation (NASDAQ:CHFC), and Power Integrations Inc (NASDAQ:POWI). All of these stocks’ market caps are closest to MEI’s market cap.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $137 million in MEI’s case. Mueller Water Products, Inc. (NYSE:MWA) is the most popular stock in this table. On the other hand Chemical Financial Corporation (NASDAQ:CHFC) is the least popular one with only 13 bullish hedge fund positions. Along with MWA, Methode Electronics Inc. (NYSE:MEI) is the most popular stock in this group and that makes it worth a closer look.