Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like MSG Networks Inc (NYSE:MSGN).
MSG Networks Inc (NYSE:MSGN) shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. MSGN was in 31 hedge funds’ portfolios at the end of September. There were 23 hedge funds in our database with MSGN positions at the end of the previous quarter. Our calculations also showed that MSGN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to check out the new hedge fund action surrounding MSG Networks Inc (NYSE:MSGN).
What does smart money think about MSG Networks Inc (NYSE:MSGN)?
At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from the second quarter of 2019. By comparison, 23 hedge funds held shares or bullish call options in MSGN a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Ariel Investments held the most valuable stake in MSG Networks Inc (NYSE:MSGN), which was worth $140.6 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $31.5 million worth of shares. Millennium Management, Renaissance Technologies, and Arrowstreet Capital 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 Solas Capital Management allocated the biggest weight to MSG Networks Inc (NYSE:MSGN), around 5.55% of its 13F portfolio. Ursa Fund Management is also relatively very bullish on the stock, designating 3.31 percent of its 13F equity portfolio to MSGN.
With a general bullishness amongst the heavyweights, some big names have jumped into MSG Networks Inc (NYSE:MSGN) headfirst. Ursa Fund Management, managed by Andrew Hahn, created the most valuable position in MSG Networks Inc (NYSE:MSGN). Ursa Fund Management had $4.7 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $2.3 million position during the quarter. The other funds with brand new MSGN positions are Donald Sussman’s Paloma Partners, Alec Litowitz and Ross Laser’s Magnetar Capital, and Parvinder Thiara’s Athanor Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as MSG Networks Inc (NYSE:MSGN) but similarly valued. These stocks are Bright Scholar Education Holdings Limited (NYSE:BEDU), Raven Industries, Inc. (NASDAQ:RAVN), RPC, Inc. (NYSE:RES), and Helix Energy Solutions Group Inc. (NYSE:HLX). All of these stocks’ market caps are similar to MSGN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BEDU | 9 | 116217 | 0 |
| RAVN | 11 | 92626 | -1 |
| RES | 12 | 66333 | -4 |
| HLX | 13 | 70293 | 2 |
| Average | 11.25 | 86367 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $268 million in MSGN’s case. Helix Energy Solutions Group Inc. (NYSE:HLX) is the most popular stock in this table. On the other hand Bright Scholar Education Holdings Limited (NYSE:BEDU) 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately MSGN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MSGN were disappointed as the stock returned -25.7% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
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.
