Were Hedge Funds Right About Masco Corporation (MAS)?

In this article we will check out the progression of hedge fund sentiment towards Masco Corporation (NYSE:MAS) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Masco Corporation (NYSE:MAS) ready to rally soon? Money managers were getting more bullish. The number of bullish hedge fund positions went up by 6 in recent months. Masco Corporation (NYSE:MAS) was in 40 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 51. Our calculations also showed that MAS 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s view the latest hedge fund action encompassing Masco Corporation (NYSE:MAS).

What have hedge funds been doing with Masco Corporation (NYSE:MAS)?

At Q2’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from one quarter earlier. By comparison, 45 hedge funds held shares or bullish call options in MAS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Arrowstreet Capital held the most valuable stake in Masco Corporation (NYSE:MAS), which was worth $149.3 million at the end of the third quarter. On the second spot was GLG Partners which amassed $124.9 million worth of shares. AQR Capital Management, Two Sigma Advisors, and Citadel Investment Group 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 SAYA Management allocated the biggest weight to Masco Corporation (NYSE:MAS), around 8.01% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, designating 4.02 percent of its 13F equity portfolio to MAS.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, established the largest position in Masco Corporation (NYSE:MAS). Alyeska Investment Group had $33.6 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also made a $27.3 million investment in the stock during the quarter. The following funds were also among the new MAS investors:  Renaissance Technologies, Ken Grossman and Glen Schneider’s SG Capital Management, and Mark Coe’s Intrinsic Edge Capital.

Let’s now review hedge fund activity in other stocks similar to Masco Corporation (NYSE:MAS). We will take a look at The Liberty SiriusXM Group (NASDAQ:LSXMA), Western Digital Corporation (NASDAQ:WDC), MongoDB, Inc. (NASDAQ:MDB), Tradeweb Markets Inc. (NASDAQ:TW), Mid America Apartment Communities Inc (NYSE:MAA), Liberty Global plc (NASDAQ:LBTYA), and International Flavors & Fragrances Inc (NYSE:IFF). This group of stocks’ market values resemble MAS’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.4 hedge funds with bullish positions and the average amount invested in these stocks was $751 million. That figure was $827 million in MAS’s case. Western Digital Corporation (NASDAQ:WDC) is the most popular stock in this table. On the other hand Liberty Global plc (NASDAQ:LBTYA) is the least popular one with only 29 bullish hedge fund positions. Masco Corporation (NYSE:MAS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MAS is 61. 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. 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% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on MAS, though not to the same extent, as the stock returned 7.3% since Q2 (through October 30th) and outperformed the market as well.

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