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Were Hedge Funds Right About Flocking Into Herman Miller, Inc. (MLHR)?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Herman Miller, Inc. (NASDAQ:MLHR).

Is Herman Miller, Inc. (NASDAQ:MLHR) worth your attention right now? The smart money is betting on the stock. The number of long hedge fund positions went up by 2 lately. Our calculations also showed that MLHR isn’t among the 30 most popular stocks among hedge funds (view the video below). MLHR was in 25 hedge funds’ portfolios at the end of June. There were 23 hedge funds in our database with MLHR positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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.

Noam Gottesman GLG Partners

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the latest hedge fund action encompassing Herman Miller, Inc. (NASDAQ:MLHR).

How have hedgies been trading Herman Miller, Inc. (NASDAQ:MLHR)?

Heading into the third quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MLHR over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with MLHR Positions

Among these funds, AQR Capital Management held the most valuable stake in Herman Miller, Inc. (NASDAQ:MLHR), which was worth $55.7 million at the end of the second quarter. On the second spot was GLG Partners which amassed $14.6 million worth of shares. Moreover, Royce & Associates, Citadel Investment Group, and Arrowstreet Capital were also bullish on Herman Miller, Inc. (NASDAQ:MLHR), allocating a large percentage of their portfolios to this stock.

Consequently, specific money managers have jumped into Herman Miller, Inc. (NASDAQ:MLHR) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Herman Miller, Inc. (NASDAQ:MLHR). Arrowstreet Capital had $10.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $6.7 million position during the quarter. The other funds with new positions in the stock are Richard Driehaus’s Driehaus Capital, Michael Gelband’s ExodusPoint Capital, and Phil Frohlich’s Prescott Group Capital Management.

Let’s also examine hedge fund activity in other stocks similar to Herman Miller, Inc. (NASDAQ:MLHR). These stocks are Avis Budget Group Inc. (NASDAQ:CAR), AAON, Inc. (NASDAQ:AAON), Shake Shack Inc (NYSE:SHAK), and South State Corporation (NASDAQ:SSB). All of these stocks’ market caps resemble MLHR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CAR 21 1045588 -7
AAON 6 6146 1
SHAK 27 440287 8
SSB 14 19985 1
Average 17 378002 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $378 million. That figure was $154 million in MLHR’s case. Shake Shack Inc (NYSE:SHAK) is the most popular stock in this table. On the other hand AAON, Inc. (NASDAQ:AAON) is the least popular one with only 6 bullish hedge fund positions. Herman Miller, Inc. (NASDAQ:MLHR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on MLHR, though not to the same extent, as the stock returned 3.6% during the third quarter and outperformed the market as well.

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

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