How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Malibu Boats Inc (NASDAQ:MBUU) and determine whether hedge funds had an edge regarding this stock.
Malibu Boats Inc (NASDAQ:MBUU) investors should be aware of an increase in support from the world’s most elite money managers recently. Malibu Boats Inc (NASDAQ:MBUU) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 22. Our calculations also showed that MBUU 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.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. Keeping this in mind we’re going to analyze the key hedge fund action encompassing Malibu Boats Inc (NASDAQ:MBUU).
How are hedge funds trading Malibu Boats Inc (NASDAQ:MBUU)?
At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in MBUU a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Malibu Boats Inc (NASDAQ:MBUU) was held by Renaissance Technologies, which reported holding $63.5 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $16.6 million position. Other investors bullish on the company included Marshall Wace LLP, Driehaus Capital, and Shellback Capital. In terms of the portfolio weights assigned to each position Shellback Capital allocated the biggest weight to Malibu Boats Inc (NASDAQ:MBUU), around 1.18% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, setting aside 1 percent of its 13F equity portfolio to MBUU.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. GLG Partners, managed by Noam Gottesman, assembled the most valuable position in Malibu Boats Inc (NASDAQ:MBUU). GLG Partners had $1.6 million invested in the company at the end of the quarter. Thomas E. Claugus’s GMT Capital also made a $1.5 million investment in the stock during the quarter. The other funds with brand new MBUU positions are Dmitry Balyasny’s Balyasny Asset Management and Paul Tudor Jones’s Tudor Investment Corp.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Malibu Boats Inc (NASDAQ:MBUU) but similarly valued. These stocks are Cardtronics plc (NASDAQ:CATM), Phreesia, Inc. (NYSE:PHR), Harsco Corporation (NYSE:HSC), Eagle Bancorp, Inc. (NASDAQ:EGBN), Phibro Animal Health Corp (NASDAQ:PAHC), Simulations Plus, Inc. (NASDAQ:SLP), and Xenia Hotels & Resorts Inc (NYSE:XHR). This group of stocks’ market caps match MBUU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CATM | 21 | 324598 | 4 |
| PHR | 20 | 106296 | 12 |
| HSC | 15 | 106780 | -1 |
| EGBN | 15 | 15854 | 3 |
| PAHC | 15 | 50304 | -1 |
| SLP | 9 | 39513 | -1 |
| XHR | 10 | 17258 | 2 |
| Average | 15 | 94372 | 2.6 |
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 $94 million. That figure was $143 million in MBUU’s case. Cardtronics plc (NASDAQ:CATM) is the most popular stock in this table. On the other hand Simulations Plus, Inc. (NASDAQ:SLP) is the least popular one with only 9 bullish hedge fund positions. Malibu Boats Inc (NASDAQ:MBUU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MBUU is 75.6. 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. 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 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately MBUU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MBUU were disappointed as the stock returned -4.6% in Q3 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
