Here is What Hedge Funds Think about Mueller Water Products, Inc. (MWA)

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Hedge fund interest in Mueller Water Products, Inc. (NYSE:MWA) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Artisan Partners Asset Management Inc (NYSE:APAM), Suburban Propane Partners LP (NYSE:SPH), and United Natural Foods, Inc. (NASDAQ:UNFI) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

Keeping this in mind, we’re going to analyze the new action surrounding Mueller Water Products, Inc. (NYSE:MWA).

How are hedge funds trading Mueller Water Products, Inc. (NYSE:MWA)?

At the end of the third quarter, a total of 20 funds tracked by Insider Monkey were long Mueller Water Products, unchanged over the quarter. The graph below displays the number of hedge funds with bullish position in MWA over the last five quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, P2 Capital Partners, led by Claus Moller, holds the largest position in Mueller Water Products, Inc. (NYSE:MWA). P2 Capital Partners has a $47 million position in the stock, comprising 7.4% of its 13F portfolio. The second largest stake is held by Impax Asset Management, led by Ian Simm, which holds a $32.2 million position; 1.5% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish comprise Chuck Royce’s Royce & Associates, Mario Gabelli’s GAMCO Investors, and Millennium Management, one of the top hedge funds in the world. We should note that Impax Asset Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually got rid of their positions entirely. Intriguingly, Peter Schliemann’s Rutabaga Capital Management got rid of the largest investment of the 700 funds tracked by Insider Monkey, totaling about $16.7 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $1.7 million worth.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Mueller Water Products, Inc. (NYSE:MWA) but similarly valued. We will take a look at Artisan Partners Asset Management Inc (NYSE:APAM), Suburban Propane Partners LP (NYSE:SPH), United Natural Foods, Inc. (NASDAQ:UNFI), and YY Inc (ADR) (NASDAQ:YY). All of these stocks’ market caps resemble MWA’s market cap.

As you can see these stocks had an average of 16 funds with bullish positions and the average amount invested in these stocks was $194 million, versus $180 million in MWA’s case. YY Inc (ADR) (NASDAQ:YY) is the most popular stock in this table. On the other hand Suburban Propane Partners LP (NYSE:SPH) is the least popular one with only four funds holding shares. Mueller Water Products, Inc. (NYSE:MWA) 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 YY Inc (ADR) (NASDAQ:YY) might be a better candidate to consider taking a long position in.

Disclosure: none