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Do Hedge Funds Love MRC Global Inc (MRC)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of MRC Global Inc (NYSE:MRC) based on that data.

MRC Global Inc (NYSE:MRC) has experienced a decrease in support from the world’s most elite money managers of late. MRC was in 17 hedge funds’ portfolios at the end of March. There were 20 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 (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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to check out the fresh hedge fund action regarding MRC Global Inc (NYSE:MRC).

Hedge fund activity in MRC Global Inc (NYSE:MRC)

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the fourth quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in MRC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, D E Shaw was the largest shareholder of MRC Global Inc (NYSE:MRC), with a stake worth $7.4 million reported as of the end of September. Trailing D E Shaw was Millennium Management, which amassed a stake valued at $3.7 million. Impax Asset Management, Renaissance Technologies, and PDT Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position PDT Partners allocated the biggest weight to MRC Global Inc (NYSE:MRC), around 0.11% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, dishing out 0.04 percent of its 13F equity portfolio to MRC.

Since MRC Global Inc (NYSE:MRC) has faced a decline in interest from hedge fund managers, it’s easy to see that there exists a select few hedge funds who sold off their entire stakes by the end of the first quarter. It’s worth mentioning that Jonathan Barrett and Paul Segal’s Luminus Management dumped the largest position of all the hedgies watched by Insider Monkey, worth close to $7.2 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $0.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as MRC Global Inc (NYSE:MRC) but similarly valued. These stocks are Pitney Bowes Inc. (NYSE:PBI), Valhi, Inc. (NYSE:VHI), CytomX Therapeutics, Inc. (NASDAQ:CTMX), and Rosetta Stone Inc (NYSE:RST). This group of stocks’ market valuations are similar to MRC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PBI 15 32943 -8
VHI 5 1855 -2
CTMX 22 98918 0
RST 22 96350 4
Average 16 57517 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $20 million in MRC’s case. CytomX Therapeutics, Inc. (NASDAQ:CTMX) is the most popular stock in this table. On the other hand Valhi, Inc. (NYSE:VHI) is the least popular one with only 5 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 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 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on MRC as the stock returned 35.3% in Q2 (through June 22nd) 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.