How do we determine whether MTS Systems Corporation (NASDAQ:MTSC) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
MTS Systems Corporation (NASDAQ:MTSC) shareholders have witnessed a decrease in hedge fund sentiment lately. MTSC was in 10 hedge funds’ portfolios at the end of the first quarter of 2019. There were 12 hedge funds in our database with MTSC positions at the end of the previous quarter. Our calculations also showed that MTSC isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let’s go over the latest hedge fund action surrounding MTS Systems Corporation (NASDAQ:MTSC).
How have hedgies been trading MTS Systems Corporation (NASDAQ:MTSC)?
At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MTSC over the last 15 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in MTS Systems Corporation (NASDAQ:MTSC) was held by Ariel Investments, which reported holding $88.6 million worth of stock at the end of March. It was followed by Select Equity Group with a $12.4 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and Citadel Investment Group.
Seeing as MTS Systems Corporation (NASDAQ:MTSC) has experienced falling interest from hedge fund managers, it’s easy to see that there is a sect of money managers that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling close to $1.6 million in stock. Minhua Zhang’s fund, Weld Capital Management, also sold off its stock, about $0.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as MTS Systems Corporation (NASDAQ:MTSC) but similarly valued. These stocks are Vocera Communications Inc (NYSE:VCRA), Marten Transport, Ltd (NASDAQ:MRTN), W&T Offshore, Inc. (NYSE:WTI), and Vanda Pharmaceuticals Inc. (NASDAQ:VNDA). All of these stocks’ market caps are closest to MTSC’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $126 million in MTSC’s case. W&T Offshore, Inc. (NYSE:WTI) is the most popular stock in this table. On the other hand Vocera Communications Inc (NYSE:VCRA) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks MTS Systems Corporation (NASDAQ:MTSC) is even less popular than VCRA. Hedge funds dodged a bullet by taking a bearish stance towards MTSC. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately MTSC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MTSC investors were disappointed as the stock returned 3.3% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.