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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded M.D.C. Holdings, Inc. (NYSE:MDC) based on those filings.
Is M.D.C. Holdings, Inc. (NYSE:MDC) worth your attention right now? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund positions were cut by 2 in recent months. Our calculations also showed that MDC 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).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 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 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.
Ken Heebner of Capital Growth Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 gander at the latest hedge fund action encompassing M.D.C. Holdings, Inc. (NYSE:MDC).
Hedge fund activity in M.D.C. Holdings, Inc. (NYSE:MDC)
At Q4’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in MDC 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.
The largest stake in M.D.C. Holdings, Inc. (NYSE:MDC) was held by Capital Growth Management, which reported holding $60.8 million worth of stock at the end of September. It was followed by Winton Capital Management with a $13 million position. Other investors bullish on the company included Royce & Associates, Fisher Asset Management, and Millennium Management. In terms of the portfolio weights assigned to each position Capital Growth Management allocated the biggest weight to M.D.C. Holdings, Inc. (NYSE:MDC), around 4.91% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.19 percent of its 13F equity portfolio to MDC.
Seeing as M.D.C. Holdings, Inc. (NYSE:MDC) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedgies that elected to cut their full holdings last quarter. It’s worth mentioning that Christian Leone’s Luxor Capital Group dumped the largest stake of all the hedgies followed by Insider Monkey, totaling about $26.5 million in stock. Brian Ashford-Russell and Tim Woolley’s fund, Polar Capital, also dropped its stock, about $22.7 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as M.D.C. Holdings, Inc. (NYSE:MDC) but similarly valued. These stocks are Aircastle Limited (NYSE:AYR), Independent Bank Group Inc (NASDAQ:IBTX), Avis Budget Group Inc. (NASDAQ:CAR), and National Beverage Corp. (NASDAQ:FIZZ). This group of stocks’ market valuations are closest to MDC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AYR | 20 | 156897 | 6 |
| IBTX | 23 | 104488 | 10 |
| CAR | 27 | 1228226 | 4 |
| FIZZ | 21 | 309323 | 5 |
| Average | 22.75 | 449734 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $450 million. That figure was $107 million in MDC’s case. Avis Budget Group Inc. (NASDAQ:CAR) is the most popular stock in this table. On the other hand Aircastle Limited (NYSE:AYR) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks M.D.C. Holdings, Inc. (NYSE:MDC) is even less popular than AYR. Hedge funds dodged a bullet by taking a bearish stance towards MDC. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately MDC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MDC investors were disappointed as the stock returned -37.9% 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 so far in 2020.
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.
