At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
MGM Resorts International (NYSE:MGM) has experienced a decrease in activity from the world’s largest hedge funds lately. MGM was in 49 hedge funds’ portfolios at the end of the third quarter of 2018. There were 51 hedge funds in our database with MGM positions at the end of the previous quarter. Our calculations also showed that MGM isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a look at the recent hedge fund action encompassing MGM Resorts International (NYSE:MGM).
How are hedge funds trading MGM Resorts International (NYSE:MGM)?
Heading into the fourth quarter of 2018, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. By comparison, 67 hedge funds held shares or bullish call options in MGM heading into this year. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Due to the fact that MGM Resorts International (NYSE:MGM) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of funds that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners cut the biggest stake of the 700 funds followed by Insider Monkey, worth close to $361.6 million in stock, and Ricky Sandler’s Eminence Capital was right behind this move, as the fund dumped about $262.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as MGM Resorts International (NYSE:MGM) but similarly valued. These stocks are Waters Corporation (NYSE:WAT), CBRE Group, Inc. (NYSE:CBRE), Evergy, Inc. (NYSE:EVRG), and Restaurant Brands International Inc (NYSE:QSR). All of these stocks’ market caps are similar to MGM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WAT | 23 | 837166 | -2 |
| CBRE | 29 | 1780804 | 5 |
| EVRG | 23 | 1590898 | -2 |
| QSR | 40 | 3833537 | -2 |
| Average | 28.75 | 2010601 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $2.01 trillion. That figure was $2.01 billion in MGM’s case. Restaurant Brands International Inc (NYSE:QSR) is the most popular stock in this table. On the other hand Waters Corporation (NYSE:WAT) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks MGM Resorts International (NYSE:MGM) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
