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Hedge Funds Never Been Less Bullish On Mayville Engineering Company, Inc. (MEC)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Mayville Engineering Company, Inc. (NYSE:MEC) based on those filings.

Mayville Engineering Company, Inc. (NYSE:MEC) shareholders have witnessed a decrease in enthusiasm from smart money recently. Our calculations also showed that MEC 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 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 51 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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 analyze the new hedge fund action surrounding Mayville Engineering Company, Inc. (NYSE:MEC).

How are hedge funds trading Mayville Engineering Company, Inc. (NYSE:MEC)?

At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -43% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MEC over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Gratia Capital, managed by Steve Pei, holds the largest position in Mayville Engineering Company, Inc. (NYSE:MEC). Gratia Capital has a $1.8 million position in the stock, comprising 11.2% of its 13F portfolio. Coming in second is Royce & Associates, led by Chuck Royce, holding a $1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish include John Overdeck and David Siegel’s Two Sigma Advisors, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital and . In terms of the portfolio weights assigned to each position Gratia Capital allocated the biggest weight to Mayville Engineering Company, Inc. (NYSE:MEC), around 11.23% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to MEC.

Seeing as Mayville Engineering Company, Inc. (NYSE:MEC) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds that decided to sell off their entire stakes in the third quarter. At the top of the heap, Charles Paquelet’s Skylands Capital dropped the largest stake of all the hedgies monitored by Insider Monkey, totaling about $1.1 million in stock, and Matthew Halbower’s Pentwater Capital Management was right behind this move, as the fund said goodbye to about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to Mayville Engineering Company, Inc. (NYSE:MEC). These stocks are The Eastern Company (NASDAQ:EML), Conn’s, Inc. (NASDAQ:CONN), Information Services Group, Inc. (NASDAQ:III), and Bel Fuse, Inc. (NASDAQ:BELFB). All of these stocks’ market caps match MEC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EML 6 34418 0
CONN 18 8611 2
III 7 21552 1
BELFB 7 11172 0
Average 9.5 18938 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $3 million in MEC’s case. Conn’s, Inc. (NASDAQ:CONN) is the most popular stock in this table. On the other hand The Eastern Company (NASDAQ:EML) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Mayville Engineering Company, Inc. (NYSE:MEC) is even less popular than EML. Hedge funds dodged a bullet by taking a bearish stance towards MEC. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately MEC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); MEC investors were disappointed as the stock returned -0.2% during the second quarter (through the end of May) 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 so far in 2020.

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