We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about MGM Growth Properties LLC (NYSE:MGP).
MGM Growth Properties LLC (NYSE:MGP) has experienced an increase in hedge fund interest of late. Our calculations also showed that MGP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Clifton S. Robbins of Blue Harbour Group
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the latest hedge fund action surrounding MGM Growth Properties LLC (NYSE:MGP).
What does smart money think about MGM Growth Properties LLC (NYSE:MGP)?
At Q4’s end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MGP over the last 18 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, Zimmer Partners was the largest shareholder of MGM Growth Properties LLC (NYSE:MGP), with a stake worth $206 million reported as of the end of September. Trailing Zimmer Partners was Citadel Investment Group, which amassed a stake valued at $103.4 million. Blue Harbour Group, Echo Street Capital Management, and Millennium Management 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 LDR Capital allocated the biggest weight to MGM Growth Properties LLC (NYSE:MGP), around 6.49% of its 13F portfolio. BlueMar Capital Management is also relatively very bullish on the stock, designating 6.47 percent of its 13F equity portfolio to MGP.
As industrywide interest jumped, key money managers were breaking ground themselves. Zimmer Partners, managed by Stuart J. Zimmer, assembled the largest position in MGM Growth Properties LLC (NYSE:MGP). Zimmer Partners had $206 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $44.2 million position during the quarter. The following funds were also among the new MGP investors: Charles Davidson and Joseph Jacobs’s Wexford Capital, Anand Parekh’s Alyeska Investment Group, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as MGM Growth Properties LLC (NYSE:MGP) but similarly valued. These stocks are 58.com Inc (NYSE:WUBA), National Oilwell Varco, Inc. (NYSE:NOV), Vail Resorts, Inc. (NYSE:MTN), and Black Knight, Inc. (NYSE:BKI). This group of stocks’ market values resemble MGP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WUBA | 21 | 475926 | -5 |
| NOV | 31 | 1019880 | 5 |
| MTN | 33 | 552480 | -6 |
| BKI | 31 | 529645 | -14 |
| Average | 29 | 644483 | -5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $644 million. That figure was $815 million in MGP’s case. Vail Resorts, Inc. (NYSE:MTN) is the most popular stock in this table. On the other hand 58.com Inc (NYSE:WUBA) is the least popular one with only 21 bullish hedge fund positions. MGM Growth Properties LLC (NYSE:MGP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately MGP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MGP investors were disappointed as the stock returned -48.3% during the same time period 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 most of these stocks already outperformed the market in Q1.
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.
