How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding MSA Safety Incorporated (NYSE:MSA) and determine whether hedge funds had an edge regarding this stock.
Is MSA Safety Incorporated (NYSE:MSA) worth your attention right now? Prominent investors were taking a bullish view. The number of long hedge fund positions inched up by 15 recently. MSA Safety Incorporated (NYSE:MSA) was in 26 hedge funds’ portfolios at the end of June. The all time high for this statistics is 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MSA isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 11 hedge funds in our database with MSA holdings at the end of March.
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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to take a look at the latest hedge fund action regarding MSA Safety Incorporated (NYSE:MSA).
What have hedge funds been doing with MSA Safety Incorporated (NYSE:MSA)?
At the end of the second quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 136% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in MSA a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Millennium Management was the largest shareholder of MSA Safety Incorporated (NYSE:MSA), with a stake worth $18 million reported as of the end of September. Trailing Millennium Management was Renaissance Technologies, which amassed a stake valued at $16.7 million. Citadel Investment Group, Paloma Partners, and D E Shaw 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 Paloma Partners allocated the biggest weight to MSA Safety Incorporated (NYSE:MSA), around 0.1% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to MSA.
As industrywide interest jumped, some big names have been driving this bullishness. Renaissance Technologies, assembled the largest position in MSA Safety Incorporated (NYSE:MSA). Renaissance Technologies had $16.7 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $5.5 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, Michael Gelband’s ExodusPoint Capital, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.
Let’s check out hedge fund activity in other stocks similar to MSA Safety Incorporated (NYSE:MSA). We will take a look at Alaska Air Group, Inc. (NYSE:ALK), Cousins Properties Incorporated (NYSE:CUZ), Agora, Inc. (NASDAQ:API), Legg Mason, Inc. (NYSE:LM), Ritchie Bros. Auctioneers Incorporated (NYSE:RBA), Eaton Vance Corp (NYSE:EV), and IDACORP Inc (NYSE:IDA). This group of stocks’ market values are similar to MSA’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $333 million. That figure was $71 million in MSA’s case. Legg Mason, Inc. (NYSE:LM) is the most popular stock in this table. On the other hand Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) is the least popular one with only 17 bullish hedge fund positions. MSA Safety Incorporated (NYSE:MSA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MSA is 74.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on MSA as the stock returned 16.7% during Q3 (through September 25th) 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.