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MTS Systems Corporation (MTSC): Are Hedge Funds Right About This Stock?

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Is MTS Systems Corporation (NASDAQ:MTSC) the right investment to pursue these days? Prominent investors are becoming less hopeful. The number of bullish hedge fund positions were cut by 3 recently.

In the eyes of most stock holders, hedge funds are assumed to be worthless, outdated financial vehicles of the past. While there are greater than 8000 funds in operation at the moment, we at Insider Monkey look at the top tier of this group, about 450 funds. It is widely believed that this group controls the lion’s share of the smart money’s total asset base, and by monitoring their highest performing stock picks, we have brought to light a few investment strategies that have historically outperformed Mr. Market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Just as key, bullish insider trading sentiment is a second way to parse down the marketplace. As the old adage goes: there are a number of reasons for an insider to downsize shares of his or her company, but just one, very clear reason why they would initiate a purchase. Many academic studies have demonstrated the impressive potential of this strategy if “monkeys” know what to do (learn more here).

With these “truths” under our belt, it’s important to take a gander at the recent action regarding MTS Systems Corporation (NASDAQ:MTSC).

What does the smart money think about MTS Systems Corporation (NASDAQ:MTSC)?

In preparation for this quarter, a total of 8 of the hedge funds we track were long in this stock, a change of -27% from the first quarter. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings considerably.

When looking at the hedgies we track, Chuck Royce’s Royce & Associates had the biggest position in MTS Systems Corporation (NASDAQ:MTSC), worth close to $38.4 million, comprising 0.1% of its total 13F portfolio. Coming in second is Jim Simons of Renaissance Technologies, with a $12.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds that are bullish include John Overdeck and David Siegel’s Two Sigma Advisors, D. E. Shaw’s D E Shaw and Cliff Asness’s AQR Capital Management.

Judging by the fact that MTS Systems Corporation (NASDAQ:MTSC) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds that slashed their positions entirely heading into Q2. It’s worth mentioning that Joel Greenblatt’s Gotham Asset Management cut the biggest investment of the 450+ funds we watch, worth about $2.2 million in stock., and Andy Redleaf of Whitebox Advisors was right behind this move, as the fund cut about $1.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q2.

What have insiders been doing with MTS Systems Corporation (NASDAQ:MTSC)?

Insider buying is best served when the company we’re looking at has experienced transactions within the past 180 days. Over the latest six-month time period, MTS Systems Corporation (NASDAQ:MTSC) has seen zero unique insiders buying, and 3 insider sales (see the details of insider trades here).

Let’s also take a look at hedge fund and insider activity in other stocks similar to MTS Systems Corporation (NASDAQ:MTSC). These stocks are Badger Meter, Inc. (NYSE:BMI), ESCO Technologies Inc. (NYSE:ESE), Ion Geophysical Corp (NYSE:IO), II-VI, Inc. (NASDAQ:IIVI), and Analogic Corporation (NASDAQ:ALOG). This group of stocks belong to the scientific & technical instruments industry and their market caps match MTSC’s market cap.

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