Did Hedge Funds Make The Right Call On MSG Networks Inc (MSGN)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded MSG Networks Inc (NYSE:MSGN) and determine whether the smart money was really smart about this stock.

Is MSG Networks Inc (NYSE:MSGN) a good investment right now? Investors who are in the know were getting less optimistic. The number of bullish hedge fund bets went down by 4 lately. Our calculations also showed that MSGN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). MSGN was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. There were 28 hedge funds in our database with MSGN holdings at the end of the previous quarter.

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 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. 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.

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s take a look at the recent hedge fund action regarding MSG Networks Inc (NYSE:MSGN).

How have hedgies been trading MSG Networks Inc (NYSE:MSGN)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MSGN over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Ariel Investments held the most valuable stake in MSG Networks Inc (NYSE:MSGN), which was worth $94.4 million at the end of the third quarter. On the second spot was Contrarius Investment Management which amassed $35.5 million worth of shares. GAMCO Investors, Arrowstreet Capital, and Solas Capital Management 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 Contrarius Investment Management allocated the biggest weight to MSG Networks Inc (NYSE:MSGN), around 4.55% of its 13F portfolio. Solas Capital Management is also relatively very bullish on the stock, designating 4.47 percent of its 13F equity portfolio to MSGN.

Due to the fact that MSG Networks Inc (NYSE:MSGN) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few fund managers who sold off their full holdings last quarter. At the top of the heap, Donald Sussman’s Paloma Partners sold off the biggest stake of the 750 funds watched by Insider Monkey, totaling close to $1.6 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $1.2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 4 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as MSG Networks Inc (NYSE:MSGN) but similarly valued. These stocks are FB Financial Corporation (NYSE:FBK), The E.W. Scripps Company (NYSE:SSP), Standex International Corp. (NYSE:SXI), and Molecular Templates, Inc. (NASDAQ:MTEM). All of these stocks’ market caps are closest to MSGN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $179 million in MSGN’s case. Molecular Templates, Inc. (NASDAQ:MTEM) is the most popular stock in this table. On the other hand Standex International Corp. (NYSE:SXI) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks MSG Networks Inc (NYSE:MSGN) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately MSGN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MSGN were disappointed as the stock returned -2.5% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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