Did Hedge Funds Make The Right Call On Mohawk Industries, Inc. (MHK) ?

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 thoughtMohawk Industries, Inc. (NYSE:MHK) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Mohawk Industries, Inc. (NYSE:MHK) was in 36 hedge funds’ portfolios at the end of March. MHK has seen a decrease in support from the world’s most elite money managers in recent months. There were 40 hedge funds in our database with MHK holdings at the end of the previous quarter. Our calculations also showed that MHK 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind let’s go over the key hedge fund action surrounding Mohawk Industries, Inc. (NYSE:MHK).

What does smart money think about Mohawk Industries, Inc. (NYSE:MHK)?

Heading into the second quarter of 2020, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in MHK a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MHK A Good Stock To Buy?

The largest stake in Mohawk Industries, Inc. (NYSE:MHK) was held by Pzena Investment Management, which reported holding $158 million worth of stock at the end of September. It was followed by Eagle Capital Management with a $126.2 million position. Other investors bullish on the company included Ariel Investments, FPR Partners, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position MD Sass allocated the biggest weight to Mohawk Industries, Inc. (NYSE:MHK), around 3.21% of its 13F portfolio. FPR Partners is also relatively very bullish on the stock, setting aside 2.45 percent of its 13F equity portfolio to MHK.

Because Mohawk Industries, Inc. (NYSE:MHK) has faced bearish sentiment from hedge fund managers, logic holds that there was a specific group of hedgies that slashed their full holdings by the end of the first quarter. At the top of the heap, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC dumped the largest investment of the 750 funds followed by Insider Monkey, comprising close to $73.3 million in stock. Renaissance Technologies, also said goodbye to its stock, about $27.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to Mohawk Industries, Inc. (NYSE:MHK). These stocks are Ally Financial Inc (NYSE:ALLY), Whirlpool Corporation (NYSE:WHR), Voya Financial Inc (NYSE:VOYA), and Ascendis Pharma A/S (NASDAQ:ASND). All of these stocks’ market caps resemble MHK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALLY 45 931554 -9
WHR 25 567352 -3
VOYA 32 617032 -11
ASND 33 2201133 -5
Average 33.75 1079268 -7

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1079 million. That figure was $586 million in MHK’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Whirlpool Corporation (NYSE:WHR) is the least popular one with only 25 bullish hedge fund positions. Mohawk Industries, Inc. (NYSE:MHK) 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 MHK as the stock returned 33.5% 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.