We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 Marcus & Millichap Inc (NYSE:MMI).
Is Marcus & Millichap Inc (NYSE:MMI) a buy here? Money managers are getting more optimistic. The number of bullish hedge fund positions moved up by 2 recently. Our calculations also showed that MMI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). MMI was in 14 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with MMI holdings at the end of the previous quarter.
Video: Click the image to 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 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 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.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the latest hedge fund action regarding Marcus & Millichap Inc (NYSE:MMI).
Hedge fund activity in Marcus & Millichap Inc (NYSE:MMI)
Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in MMI over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of Marcus & Millichap Inc (NYSE:MMI), with a stake worth $98.8 million reported as of the end of September. Trailing Royce & Associates was Sprott Asset Management, which amassed a stake valued at $3.5 million. Winton Capital Management, Two Sigma Advisors, and Holocene Advisors 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 Royce & Associates allocated the biggest weight to Marcus & Millichap Inc (NYSE:MMI), around 0.91% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, setting aside 0.91 percent of its 13F equity portfolio to MMI.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Holocene Advisors, managed by Brandon Haley, established the most outsized position in Marcus & Millichap Inc (NYSE:MMI). Holocene Advisors had $1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $0.8 million investment in the stock during the quarter. The following funds were also among the new MMI investors: Dmitry Balyasny’s Balyasny Asset Management, Matthew Hulsizer’s PEAK6 Capital Management, and Joel Greenblatt’s Gotham Asset Management.
Let’s check out hedge fund activity in other stocks similar to Marcus & Millichap Inc (NYSE:MMI). These stocks are Oi SA (NYSE:OIBR), Monmouth Real Estate Investment Corporation (NYSE:MNR), Industrial Logistics Properties Trust (NASDAQ:ILPT), and BioTelemetry, Inc. (NASDAQ:BEAT). This group of stocks’ market values resemble MMI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OIBR | 11 | 291042 | -7 |
| MNR | 10 | 73788 | -3 |
| ILPT | 11 | 83064 | 2 |
| BEAT | 16 | 39830 | 0 |
| Average | 12 | 121931 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $111 million in MMI’s case. BioTelemetry, Inc. (NASDAQ:BEAT) is the most popular stock in this table. On the other hand Monmouth Real Estate Investment Corporation (NYSE:MNR) is the least popular one with only 10 bullish hedge fund positions. Marcus & Millichap Inc (NYSE:MMI) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MMI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MMI were disappointed as the stock returned 3.6% during the fourth quarter (through the end of November) 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.
Disclosure: None. This article was originally published at Insider Monkey.
