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Were Hedge Funds Right About Materion Corp (MTRN)?

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 Materion Corp (NYSE:MTRN) and determine whether hedge funds skillfully traded this stock.

Hedge fund interest in Materion Corp (NYSE:MTRN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare MTRN to other stocks including The Providence Service Corporation (NASDAQ:PRSC), Transocean Ltd (NYSE:RIG), and Granite Construction Incorporated (NYSE:GVA) to get a better sense of its popularity.

Video: 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 S&P 500 ETFs by 58 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.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to take a look at the fresh hedge fund action regarding Materion Corp (NYSE:MTRN).

Hedge fund activity in Materion Corp (NYSE:MTRN)

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MTRN over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Materion Corp (NYSE:MTRN), with a stake worth $18.8 million reported as of the end of September. Trailing Renaissance Technologies was GAMCO Investors, which amassed a stake valued at $12.2 million. Fisher Asset Management, Millennium Management, and GLG Partners 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 ACK Asset Management allocated the biggest weight to Materion Corp (NYSE:MTRN), around 0.62% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, earmarking 0.18 percent of its 13F equity portfolio to MTRN.

Because Materion Corp (NYSE:MTRN) has witnessed a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few funds who were dropping their positions entirely by the end of the first quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest position of all the hedgies watched by Insider Monkey, totaling close to $1.6 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund dropped about $0.5 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Materion Corp (NYSE:MTRN) but similarly valued. We will take a look at The Providence Service Corporation (NASDAQ:PRSC), Transocean Ltd (NYSE:RIG), Granite Construction Incorporated (NYSE:GVA), and Arcos Dorados Holdings Inc. (NYSE:ARCO). This group of stocks’ market valuations are similar to MTRN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PRSC 11 142849 -4
RIG 21 117370 -5
GVA 16 45982 9
ARCO 12 36064 -1
Average 15 85566 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $61 million in MTRN’s case. Transocean Ltd (NYSE:RIG) is the most popular stock in this table. On the other hand The Providence Service Corporation (NASDAQ:PRSC) is the least popular one with only 11 bullish hedge fund positions. Materion Corp (NYSE:MTRN) is not the most popular stock in this group but hedge fund interest is still above average. 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on MTRN as the stock returned 66.8% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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