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Hedge Funds Aren’t Playing With Mattel, Inc. (MAT) Anymore

In this article we will check out the progression of hedge fund sentiment towards Mattel, Inc. (NASDAQ:MAT) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Mattel, Inc. (NASDAQ:MAT) a bargain? Hedge funds are becoming less hopeful. The number of bullish hedge fund positions were trimmed by 2 recently. Our calculations also showed that MAT 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). MAT was in 17 hedge funds’ portfolios at the end of March. There were 19 hedge funds in our database with MAT holdings at the end of the previous quarter.

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 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 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.

Mason Hawkins of Southeastern Asset 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 key hedge fund action encompassing Mattel, Inc. (NASDAQ:MAT).

What have hedge funds been doing with Mattel, Inc. (NASDAQ:MAT)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the fourth quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in MAT 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.

Among these funds, Southeastern Asset Management held the most valuable stake in Mattel, Inc. (NASDAQ:MAT), which was worth $259.3 million at the end of the third quarter. On the second spot was Ariel Investments which amassed $155.1 million worth of shares. Marshall Wace LLP, Citadel Investment Group, and Balyasny Asset Management 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 Southeastern Asset Management allocated the biggest weight to Mattel, Inc. (NASDAQ:MAT), around 6.17% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, dishing out 2.72 percent of its 13F equity portfolio to MAT.

Since Mattel, Inc. (NASDAQ:MAT) has witnessed a decline in interest from hedge fund managers, we can see that there is a sect of fund managers who were dropping their full holdings last quarter. Intriguingly, Clint Carlson’s Carlson Capital said goodbye to the largest investment of all the hedgies monitored by Insider Monkey, worth close to $6.6 million in stock, and Jeffrey Bronchick’s Cove Street Capital was right behind this move, as the fund cut about $3.5 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Mattel, Inc. (NASDAQ:MAT). These stocks are FibroGen Inc (NASDAQ:FGEN), Unum Group (NYSE:UNM), Rayonier Inc. (NYSE:RYN), and Community Bank System, Inc. (NYSE:CBU). All of these stocks’ market caps resemble MAT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FGEN 22 283279 1
UNM 25 159751 -5
RYN 13 271594 -1
CBU 11 12275 1
Average 17.75 181725 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $475 million in MAT’s case. Unum Group (NYSE:UNM) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 11 bullish hedge fund positions. Mattel, Inc. (NASDAQ:MAT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 and surpassed the market by 15.9 percentage points. Unfortunately MAT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MAT investors were disappointed as the stock returned 14% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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