It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. 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 Monarch Casino & Resort, Inc. (NASDAQ:MCRI).
Hedge fund interest in Monarch Casino & Resort, Inc. (NASDAQ:MCRI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare MCRI to other stocks including Cellcom Israel Ltd. (NYSE:CEL), Mercer International Inc. (NASDAQ:MERC), and CytomX Therapeutics, Inc. (NASDAQ:CTMX) to get a better sense of its popularity.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a glance at the new hedge fund action encompassing Monarch Casino & Resort, Inc. (NASDAQ:MCRI).
How have hedgies been trading Monarch Casino & Resort, Inc. (NASDAQ:MCRI)?
Heading into the first quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MCRI over the last 14 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Park West Asset Management held the most valuable stake in Monarch Casino & Resort, Inc. (NASDAQ:MCRI), which was worth $58.5 million at the end of the fourth quarter. On the second spot was Lafitte Capital Management which amassed $37.7 million worth of shares. Moreover, Renaissance Technologies, Driehaus Capital, and Venator Capital Management were also bullish on Monarch Casino & Resort, Inc. (NASDAQ:MCRI), allocating a large percentage of their portfolios to this stock.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Zebra Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let’s now take a look at hedge fund activity in other stocks similar to Monarch Casino & Resort, Inc. (NASDAQ:MCRI). We will take a look at Cellcom Israel Ltd. (NYSE:CEL), Mercer International Inc. (NASDAQ:MERC), CytomX Therapeutics, Inc. (NASDAQ:CTMX), and Nine Energy Service, Inc. (NYSE:NINE). This group of stocks’ market values match MCRI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CEL | 2 | 22038 | 1 |
| MERC | 16 | 141321 | -3 |
| CTMX | 17 | 123022 | -2 |
| NINE | 10 | 38774 | 3 |
| Average | 11.25 | 81289 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $115 million in MCRI’s case. CytomX Therapeutics, Inc. (NASDAQ:CTMX) is the most popular stock in this table. On the other hand Cellcom Israel Ltd. (NYSE:CEL) is the least popular one with only 2 bullish hedge fund positions. Monarch Casino & Resort, Inc. (NASDAQ:MCRI) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately MCRI wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); MCRI investors were disappointed as the stock returned 16.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
