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Hedge Funds Rushed Into MTS Systems Corporation (MTSC) Prematurely

Is MTS Systems Corporation (NASDAQ:MTSC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

MTS Systems Corporation (NASDAQ:MTSC) investors should be aware of an increase in enthusiasm from smart money lately. Our calculations also showed that MTSC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most market participants, hedge funds are perceived as underperforming, outdated financial tools of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our researchers choose to focus on the crème de la crème of this group, about 750 funds. These investment experts command most of the hedge fund industry’s total capital, and by tailing their unrivaled stock picks, Insider Monkey has come up with many investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham 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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the latest hedge fund action surrounding MTS Systems Corporation (NASDAQ:MTSC).

What does smart money think about MTS Systems Corporation (NASDAQ:MTSC)?

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MTSC over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Ariel Investments was the largest shareholder of MTS Systems Corporation (NASDAQ:MTSC), with a stake worth $82 million reported as of the end of September. Trailing Ariel Investments was Renaissance Technologies, which amassed a stake valued at $13.3 million. Citadel Investment Group, D E Shaw, and Arrowstreet Capital 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 Ariel Investments allocated the biggest weight to MTS Systems Corporation (NASDAQ:MTSC), around 1.09% 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 MTSC.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in MTS Systems Corporation (NASDAQ:MTSC). Arrowstreet Capital had $3.1 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $2.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman’s Paloma Partners, Cliff Asness’s AQR Capital Management, and Joel Greenblatt’s Gotham Asset Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as MTS Systems Corporation (NASDAQ:MTSC) but similarly valued. These stocks are Innoviva, Inc. (NASDAQ:INVA), CTS Corporation (NYSE:CTS), National Bank Holdings Corp (NYSE:NBHC), and K12 Inc. (NYSE:LRN). All of these stocks’ market caps match MTSC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INVA 24 224572 1
CTS 10 86136 1
NBHC 11 78989 1
LRN 17 133604 -5
Average 15.5 130825 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $121 million in MTSC’s case. Innoviva, Inc. (NASDAQ:INVA) is the most popular stock in this table. On the other hand CTS Corporation (NYSE:CTS) is the least popular one with only 10 bullish hedge fund positions. MTS Systems Corporation (NASDAQ:MTSC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MTSC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MTSC were disappointed as the stock returned -17.8% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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