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Did Hedge Funds Make The Right Call On Masco Corporation (MAS) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtMasco Corporation (NYSE:MAS) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Masco Corporation (NYSE:MAS) an outstanding investment today? The best stock pickers were becoming less confident. The number of long hedge fund positions shrunk by 11 lately. Our calculations also showed that MAS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding Masco Corporation (NYSE:MAS).

How are hedge funds trading Masco Corporation (NYSE:MAS)?

At Q1’s end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in MAS over the last 18 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is MAS A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin’s Citadel Investment Group has the number one position in Masco Corporation (NYSE:MAS), worth close to $87.5 million, accounting for less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, led by Cliff Asness, holding a $75.4 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish consist of John Overdeck and David Siegel’s Two Sigma Advisors, Phill Gross and Robert Atchinson’s Adage Capital Management and John W. Rogers’s Ariel Investments. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to Masco Corporation (NYSE:MAS), around 5.53% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, earmarking 3.88 percent of its 13F equity portfolio to MAS.

Seeing as Masco Corporation (NYSE:MAS) has faced declining sentiment from hedge fund managers, it’s easy to see that there was a specific group of money managers that decided to sell off their full holdings in the first quarter. Intriguingly,  Renaissance Technologies dropped the largest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $29.8 million in stock, and Ryan Caldwell’s Chiron Investment Management was right behind this move, as the fund said goodbye to about $21.5 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 11 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Masco Corporation (NYSE:MAS) but similarly valued. We will take a look at Agnico Eagle Mines Limited (NYSE:AEM), W.R. Berkley Corporation (NYSE:WRB), NiSource Inc. (NYSE:NI), and DaVita Inc (NYSE:DVA). This group of stocks’ market valuations are closest to MAS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AEM 25 392047 -9
WRB 26 208286 -8
NI 27 641894 -1
DVA 43 3657786 5
Average 30.25 1225003 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $1225 million. That figure was $490 million in MAS’s case. DaVita Inc (NYSE:DVA) is the most popular stock in this table. On the other hand Agnico Eagle Mines Limited (NYSE:AEM) is the least popular one with only 25 bullish hedge fund positions. Masco Corporation (NYSE:MAS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on MAS as the stock returned 45.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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