Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets, hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards McGrath RentCorp (NASDAQ:MGRC).
Is McGrath RentCorp (NASDAQ:MGRC) undervalued? Prominent investors are in a pessimistic mood. The number of long hedge fund positions dropped by 3 recently. At the end of this article, we will also compare McGrath RentCorp (NASDAQ:MGRC) to other stocks including DHT Holdings Inc (NYSE:DHT), On Deck Capital Inc (NYSE:ONDK), and Tsakos Energy Navigation Ltd. (NYSE:TNP) to get a better sense of its popularity.
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In today’s marketplace, there are many formulas shareholders employ to size up their holdings. A couple of the less known formulas are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the elite investment managers can outperform the market by a significant amount (see the details here).
With all of this in mind, we’re going to take a look at the new action surrounding McGrath RentCorp (NASDAQ:MGRC).
What have hedge funds been doing with McGrath RentCorp (NASDAQ:MGRC)?
Heading into Q4, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 33% from the second quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the largest position in McGrath RentCorp (NASDAQ:MGRC). Royce & Associates has a $7.8 million position in the stock, comprising less than 0.1% of its 13F portfolio. Coming in second is Renaissance Technologies holding a $1.9 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish include John Overdeck and David Siegel’s Two Sigma Advisors, Mario Gabelli’s GAMCO Investors, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Judging by the fact that McGrath RentCorp (NASDAQ:MGRC) has faced a declination in interest from hedge fund managers, it’s easy to see that there exists a select few hedgies that decided to sell off their entire stakes in the third quarter. Interestingly, D E Shaw dropped the largest stake of the 700 funds followed by Insider Monkey, worth close to $0.8 million in stock. Ken Griffin’s fund, Citadel Investment Group, also sold off its stock, about $0.5 million worth of shares. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to McGrath RentCorp (NASDAQ:MGRC). We will take a look at DHT Holdings Inc (NYSE:DHT), On Deck Capital Inc (NYSE:ONDK), Tsakos Energy Navigation Ltd. (NYSE:TNP), and Genomic Health, Inc. (NASDAQ:GHDX). All of these stocks’ market caps are similar to McGrath RentCorp (NASDAQ:MGRC)’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DHT | 30 | 266279 | -3 |
| ONDK | 8 | 169987 | -3 |
| TNP | 19 | 112951 | 3 |
| GHDX | 13 | 404189 | -2 |
As you can see, these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $238 million. That figure was $13 million in McGrath RentCorp (NASDAQ:MGRC)’s case. DHT Holdings Inc (NYSE:DHT) is the most popular stock in this table. On the other hand, On Deck Capital Inc (NYSE:ONDK) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks McGrath RentCorp (NASDAQ:MGRC) is even less popular than On Deck Capital Inc (NYSE:ONDK). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.
