Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards The Madison Square Garden Company (NASDAQ:MSG).
The Madison Square Garden Company (NASDAQ:MSG) investors should be aware of a decrease in enthusiasm from smart money of late. Our calculations also showed that MSG 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).
If you’d ask most stock holders, hedge funds are assumed to be slow, old financial vehicles of years past. While there are over 8000 funds with their doors open today, We choose to focus on the top tier of this group, around 850 funds. These hedge fund managers command most of the smart money’s total capital, and by following their top picks, Insider Monkey has unsheathed various investment strategies that have historically defeated the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Clifton Robbins of Blue Harbour
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. Keeping this in mind let’s take a glance at the latest hedge fund action encompassing The Madison Square Garden Company (NASDAQ:MSG).
What does smart money think about The Madison Square Garden Company (NYSE:MSG)?
At the end of the fourth quarter, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MSG over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Silver Lake Partners held the most valuable stake in The Madison Square Garden Company (NYSE:MSG), which was worth $559 million at the end of the third quarter. On the second spot was Blue Harbour Group which amassed $239.9 million worth of shares. Long Pond Capital, GAMCO Investors, and Corvex Capital 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 Mason Capital Management allocated the biggest weight to The Madison Square Garden Company (NYSE:MSG), around 29.21% of its 13F portfolio. Blue Harbour Group is also relatively very bullish on the stock, setting aside 16.45 percent of its 13F equity portfolio to MSG.
Because The Madison Square Garden Company (NYSE:MSG) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of funds who sold off their full holdings by the end of the third quarter. Intriguingly, Sander Gerber’s Hudson Bay Capital Management dumped the largest position of the “upper crust” of funds tracked by Insider Monkey, comprising close to $28.3 million in stock. Spencer M. Waxman’s fund, Shannon River Fund Management, also cut its stock, about $17.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to The Madison Square Garden Company (NYSE:MSG). These stocks are Sociedad Quimica y Minera (NYSE:SQM), Herbalife Nutrition Ltd. (NYSE:HLF), Starwood Property Trust, Inc. (NYSE:STWD), and Anaplan, Inc. (NYSE:PLAN). This group of stocks’ market values resemble MSG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SQM | 13 | 44514 | 5 |
| HLF | 32 | 3311834 | 9 |
| STWD | 21 | 168906 | 1 |
| PLAN | 57 | 2187728 | 13 |
| Average | 30.75 | 1428246 | 7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $1428 million. That figure was $1920 million in MSG’s case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand Sociedad Quimica y Minera (NYSE:SQM) is the least popular one with only 13 bullish hedge fund positions. The Madison Square Garden Company (NYSE:MSG) 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 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 MSG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MSG were disappointed as the stock returned -33.3% 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 many of these stocks already outperformed the market so far this year.
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.
