Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves.
Is Manchester United PLC (NYSE:MANU) undervalued? Investors who are in the know are getting less bullish. The number of long hedge fund positions dropped by 1 recently. Our calculations also showed that MANU isn’t among the 30 most popular stocks among hedge funds (view the video below). MANU was in 10 hedge funds’ portfolios at the end of June. There were 11 hedge funds in our database with MANU holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 40 percentage points since May 2014 through May 30, 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the latest hedge fund action surrounding Manchester United PLC (NYSE:MANU).
What does smart money think about Manchester United PLC (NYSE:MANU)?
At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in MANU over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Lansdowne Partners was the largest shareholder of Manchester United PLC (NYSE:MANU), with a stake worth $19.6 million reported as of the end of March. Trailing Lansdowne Partners was Renaissance Technologies, which amassed a stake valued at $10.7 million. D E Shaw, Alyeska Investment Group, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Because Manchester United PLC (NYSE:MANU) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds who sold off their entire stakes last quarter. It’s worth mentioning that Israel Englander’s Millennium Management sold off the biggest stake of the 750 funds tracked by Insider Monkey, valued at close to $1.4 million in call options. Israel Englander’s fund, Millennium Management, also sold off its call options, about $0.9 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Manchester United PLC (NYSE:MANU) but similarly valued. We will take a look at Holly Energy Partners, L.P. (NYSE:HEP), Chemical Financial Corporation (NASDAQ:CHFC), Coca-Cola Consolidated, Inc. (NASDAQ:COKE), and The Medicines Company (NASDAQ:MDCO). This group of stocks’ market valuations match MANU’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HEP | 1 | 2228 | -3 |
| CHFC | 20 | 127114 | 2 |
| COKE | 11 | 26121 | 2 |
| MDCO | 33 | 921458 | 8 |
| Average | 16.25 | 269230 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $42 million in MANU’s case. The Medicines Company (NASDAQ:MDCO) is the most popular stock in this table. On the other hand Holly Energy Partners, L.P. (NYSE:HEP) is the least popular one with only 1 bullish hedge fund positions. Manchester United PLC (NYSE:MANU) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MANU wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MANU investors were disappointed as the stock returned -9.1% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
