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Did Hedge Funds Drop The Ball On MRC Global Inc (MRC) ?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

MRC Global Inc (NYSE:MRC) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. MRC was in 15 hedge funds’ portfolios at the end of December. There were 17 hedge funds in our database with MRC holdings at the end of the previous quarter. Our calculations also showed that mrc isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jonathan Barrett Luminus Management

Let’s take a peek at the new hedge fund action encompassing MRC Global Inc (NYSE:MRC).

How have hedgies been trading MRC Global Inc (NYSE:MRC)?

At Q4’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MRC over the last 14 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

No of Hedge Funds with MRC Positions

The largest stake in MRC Global Inc (NYSE:MRC) was held by Luminus Management, which reported holding $54.4 million worth of stock at the end of December. It was followed by D E Shaw with a $34.5 million position. Other investors bullish on the company included Impax Asset Management, Renaissance Technologies, and Millennium Management.

Seeing as MRC Global Inc (NYSE:MRC) has faced declining sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedgies who were dropping their entire stakes last quarter. At the top of the heap, Noam Gottesman’s GLG Partners sold off the largest position of all the hedgies followed by Insider Monkey, valued at about $3 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund cut about $2.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to MRC Global Inc (NYSE:MRC). These stocks are Cooper-Standard Holdings Inc (NYSE:CPS), PRA Group, Inc. (NASDAQ:PRAA), Heritage Financial Corporation (NASDAQ:HFWA), and Houghton Mifflin Harcourt Co (NASDAQ:HMHC). This group of stocks’ market caps are similar to MRC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CPS 17 43113 -8
PRAA 10 87363 3
HFWA 8 57644 2
HMHC 19 283998 6
Average 13.5 118030 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $113 million in MRC’s case. Houghton Mifflin Harcourt Co (NASDAQ:HMHC) is the most popular stock in this table. On the other hand Heritage Financial Corporation (NASDAQ:HFWA) is the least popular one with only 8 bullish hedge fund positions. MRC Global Inc (NYSE:MRC) 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 MRC as the stock returned 52.5% 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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