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Did Hedge Funds Drop The Ball On Meritor Inc (MTOR) ?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Meritor Inc (NYSE:MTOR).

Is Meritor Inc (NYSE:MTOR) a buy here? Hedge funds are in a bearish mood. The number of long hedge fund positions were cut by 4 recently. Our calculations also showed that MTOR isn’t among the 30 most popular stocks among hedge funds. MTOR was in 20 hedge funds’ portfolios at the end of December. There were 24 hedge funds in our database with MTOR holdings at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

GLENVIEW CAPITAL

Let’s view the latest hedge fund action surrounding Meritor Inc (NYSE:MTOR).

How are hedge funds trading Meritor Inc (NYSE:MTOR)?

Heading into the first quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MTOR over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

MTOR_apr2019

Of the funds tracked by Insider Monkey, Glenview Capital, managed by Larry Robbins, holds the most valuable position in Meritor Inc (NYSE:MTOR). Glenview Capital has a $140.3 million position in the stock, comprising 1.4% of its 13F portfolio. Sitting at the No. 2 spot is Chuck Royce of Royce & Associates, with a $50.8 million position; 0.5% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions consist of Jacob Doft’s Highline Capital Management, Cliff Asness’s AQR Capital Management and Robert Polak’s Anchor Bolt Capital.

Seeing as Meritor Inc (NYSE:MTOR) has faced falling interest from the aggregate hedge fund industry, we can see that there was a specific group of money managers that slashed their full holdings last quarter. Interestingly, Ken Griffin’s Citadel Investment Group dumped the largest position of all the hedgies watched by Insider Monkey, valued at about $11.4 million in stock. Sander Gerber’s fund, Hudson Bay Capital Management, also said goodbye to its stock, about $7.6 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Meritor Inc (NYSE:MTOR) but similarly valued. We will take a look at Saia Inc (NASDAQ:SAIA), Badger Meter, Inc. (NYSE:BMI), iKang Healthcare Group Inc (NASDAQ:KANG), and Hostess Brands, Inc. (NASDAQ:TWNK). This group of stocks’ market caps are closest to MTOR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SAIA 18 48410 3
BMI 12 94178 3
KANG 10 22578 -3
TWNK 20 85964 -4
Average 15 62783 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $290 million in MTOR’s case. Hostess Brands, Inc. (NASDAQ:TWNK) is the most popular stock in this table. On the other hand iKang Healthcare Group Inc (NASDAQ:KANG) is the least popular one with only 10 bullish hedge fund positions. Meritor Inc (NYSE:MTOR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on MTOR as the stock returned 47.3% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

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