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 Medallion Financial Corp. (NASDAQ:MFIN).
Medallion Financial Corp. (NASDAQ:MFIN) has experienced an increase in support from the world’s most elite money managers of late. Our calculations also showed that MFIN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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.
Mario Gabelli of GAMCO Investors
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. Now we’re going to take a look at the key hedge fund action surrounding Medallion Financial Corp. (NASDAQ:MFIN).
Hedge fund activity in Medallion Financial Corp. (NASDAQ:MFIN)
Heading into the fourth quarter of 2019, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in MFIN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Selz Capital held the most valuable stake in Medallion Financial Corp. (NASDAQ:MFIN), which was worth $1.6 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $1.5 million worth of shares. Citadel Investment Group, Winton Capital Management, and Ancora 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 Selz Capital allocated the biggest weight to Medallion Financial Corp. (NASDAQ:MFIN), around 0.4% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to MFIN.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, created the largest position in Medallion Financial Corp. (NASDAQ:MFIN). Citadel Investment Group had $0.2 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also initiated a $0.1 million position during the quarter. The only other fund with a new position in the stock is Israel Englander’s Millennium Management.
Let’s now review hedge fund activity in other stocks similar to Medallion Financial Corp. (NASDAQ:MFIN). These stocks are MVC Capital, Inc. (NYSE:MVC), SunOpta, Inc. (NASDAQ:STKL), Olympic Steel, Inc. (NASDAQ:ZEUS), and Vitamin Shoppe Inc (NYSE:VSI). This group of stocks’ market caps match MFIN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MVC | 9 | 46000 | 0 |
| STKL | 13 | 62722 | -1 |
| ZEUS | 7 | 3501 | -2 |
| VSI | 12 | 38820 | 1 |
| Average | 10.25 | 37761 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $4 million in MFIN’s case. SunOpta, Inc. (NASDAQ:STKL) is the most popular stock in this table. On the other hand Olympic Steel, Inc. (NASDAQ:ZEUS) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Medallion Financial Corp. (NASDAQ:MFIN) is even less popular than ZEUS. Hedge funds dodged a bullet by taking a bearish stance towards MFIN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MFIN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MFIN investors were disappointed as the stock returned -0.5% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
