Were Hedge Funds Right About Selling Herman Miller, Inc. (MLHR)?
We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Herman Miller, Inc. (NASDAQ:MLHR) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Herman Miller, Inc. (NASDAQ:MLHR) has seen a decrease in hedge fund sentiment in recent months. Our calculations also showed that MLHR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
To most investors, hedge funds are viewed as underperforming, old investment vehicles of yesteryear. While there are greater than 8000 funds in operation at the moment, Our experts choose to focus on the top tier of this club, about 850 funds. These money managers command most of all hedge funds' total capital, and by monitoring their highest performing picks, Insider Monkey has spotted numerous investment strategies that have historically exceeded the broader indices. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_745225" align="aligncenter" width="400"]
Noam Gottesman of GLG Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's take a look at the recent hedge fund action surrounding Herman Miller, Inc. (NASDAQ:MLHR).
What have hedge funds been doing with Herman Miller, Inc. (NASDAQ:MLHR)?
At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in MLHR a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Herman Miller, Inc. (NASDAQ:MLHR) was held by AQR Capital Management, which reported holding $107 million worth of stock at the end of September. It was followed by GLG Partners with a $23.9 million position. Other investors bullish on the company included Arrowstreet Capital, SG Capital Management, and Royce & Associates. In terms of the portfolio weights assigned to each position SG Capital Management allocated the biggest weight to Herman Miller, Inc. (NASDAQ:MLHR), around 2.49% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, setting aside 0.78 percent of its 13F equity portfolio to MLHR.
Due to the fact that Herman Miller, Inc. (NASDAQ:MLHR) has faced a decline in interest from hedge fund managers, it's easy to see that there is a sect of fund managers that decided to sell off their full holdings last quarter. Intriguingly, Mark Coe's Intrinsic Edge Capital dumped the largest stake of the "upper crust" of funds monitored by Insider Monkey, totaling an estimated $6.1 million in stock, and Richard Driehaus's Driehaus Capital was right behind this move, as the fund dropped about $4.3 million worth. These moves are important to note, as total hedge fund interest was cut by 4 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Herman Miller, Inc. (NASDAQ:MLHR) but similarly valued. These stocks are American Eagle Outfitters Inc. (NYSE:AEO), Albany International Corp. (NYSE:AIN), Golub Capital BDC Inc (NASDAQ:GBDC), and LivePerson, Inc. (NASDAQ:LPSN). This group of stocks' market values resemble MLHR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AEO,24,297377,-5 AIN,19,96389,5 GBDC,16,117101,4 LPSN,23,202344,7 Average,20.5,178303,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $178 million. That figure was $213 million in MLHR's case. American Eagle Outfitters Inc. (NYSE:AEO) is the most popular stock in this table. On the other hand Golub Capital BDC Inc (NASDAQ:GBDC) is the least popular one with only 16 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately MLHR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MLHR were disappointed as the stock returned -46.7% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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