Here’s Why Headwaters Capital Sold its Masimo Corp. (MASI) Position

Headwaters Capital, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of 8.3% was recorded by the fund for the second quarter of 2021, outperforming the Russell Mid Cap Index that delivered a 7.5% return for the same period. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Headwaters Capital, the fund mentioned Masimo Corporation (NASDAQ: MASI), and discussed its stance on the firm. Masimo Corporation is an Irvine, California-based medical innovation company, that currently has a $14.3 billion market capitalization. MASI delivered a -2.95% return since the beginning of the year, while its 12-month revenues are up by 16.10%. The stock closed at $260.46 per share on July 12, 2021.

Here is what Headwaters Capital has to say about Masimo Corporation in its Q2 2021 investor letter:

“I exited the position in Masimo (“MASI”) during the quarter. Masimo is the leader in SET pulse oximeters (device that is placed on your finger to measure oxygen levels) that are used in medical settings. The sell decision was driven by delayed new product roll-outs and slower uptake of new products that have been introduced. While I believe the core business for MASI will continue to perform well, I’m concerned that revenue growth from new products will be slower to materialize and could pressure the company’s premium valuation.”


Based on our calculations, Masimo Corporation (NASDAQ: MASI) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Masimo Corporation was in 35 hedge fund portfolios at the end of the first quarter of 2021, compared to 29 funds in the fourth quarter of 2020. MASI delivered an 8.88% return in the past 3 months.

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 115 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.

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