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Masimo Corporation (MASI): Hedge Funds Are Nibbling

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Masimo Corporation (NASDAQ:MASI) and determine whether hedge funds skillfully traded this stock.

Masimo Corporation (NASDAQ:MASI) investors should be aware of an increase in activity from the world’s largest hedge funds in recent months. Masimo Corporation (NASDAQ:MASI) was in 32 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 34. Our calculations also showed that MASI 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s take a peek at the recent hedge fund action surrounding Masimo Corporation (NASDAQ:MASI).

What have hedge funds been doing with Masimo Corporation (NASDAQ:MASI)?

At second quarter’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the first quarter of 2020. On the other hand, there were a total of 28 hedge funds with a bullish position in MASI a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the biggest position in Masimo Corporation (NASDAQ:MASI), worth close to $25.2 million, corresponding to less than 0.1%% of its total 13F portfolio. The second largest stake is held by GAMCO Investors, led by Mario Gabelli, holding a $21.7 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish contain Noam Gottesman’s GLG Partners, Israel Englander’s Millennium Management and Robert Joseph Caruso’s Select Equity Group. In terms of the portfolio weights assigned to each position Blue Whale Capital allocated the biggest weight to Masimo Corporation (NASDAQ:MASI), around 2.59% of its 13F portfolio. Aubrey Capital Management is also relatively very bullish on the stock, setting aside 1.71 percent of its 13F equity portfolio to MASI.

Consequently, some big names were breaking ground themselves. Select Equity Group, managed by Robert Joseph Caruso, assembled the most valuable position in Masimo Corporation (NASDAQ:MASI). Select Equity Group had $12.3 million invested in the company at the end of the quarter. Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management also made a $8.4 million investment in the stock during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, Jonathan Soros’s JS Capital, and Michael Gelband’s ExodusPoint Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Masimo Corporation (NASDAQ:MASI) but similarly valued. We will take a look at AngloGold Ashanti Limited (NYSE:AU), Godaddy Inc (NYSE:GDDY), Cheniere Energy, Inc. (NYSE:LNG), Atmos Energy Corporation (NYSE:ATO), Fair Isaac Corporation (NYSE:FICO), GDS Holdings Limited (NASDAQ:GDS), and Brookfield Infrastructure Partners L.P. (NYSE:BIP). This group of stocks’ market valuations are closest to MASI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AU 16 726270 -3
GDDY 55 2539026 1
LNG 38 2123554 -1
ATO 22 152893 1
FICO 36 1222830 -5
GDS 43 2239390 2
BIP 12 52792 -2
Average 31.7 1293822 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.7 hedge funds with bullish positions and the average amount invested in these stocks was $1294 million. That figure was $161 million in MASI’s case. Godaddy Inc (NYSE:GDDY) is the most popular stock in this table. On the other hand Brookfield Infrastructure Partners L.P. (NYSE:BIP) is the least popular one with only 12 bullish hedge fund positions. Masimo Corporation (NASDAQ:MASI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MASI is 57.5. 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. 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 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately MASI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MASI were disappointed as the stock returned -3.1% during the same time period 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 many of these stocks already outperformed the market so far this year.

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