Marcus & Millichap Inc (MMI): Are Hedge Funds Right About This Stock?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other successful funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Marcus & Millichap Inc (NYSE:MMI) .

Marcus & Millichap Inc (NYSE:MMI) investors should pay attention to a decrease in support from the world’s most successful money managers recently. MMI was in 12 hedge funds’ portfolios at the end of September. There were 13 hedge funds in our database with MMI holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Surgery Partners Inc (NASDAQ:SGRY), Lannett Company, Inc. (NYSEAMEX:LCI), and Array Biopharma Inc (NASDAQ:ARRY) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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Now, we’re going to take a gander at the latest action surrounding Marcus & Millichap Inc (NYSE:MMI).

What does the smart money think about Marcus & Millichap Inc (NYSE:MMI)?

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the second quarter of 2016. On the other hand, there were a total of 18 hedge funds with a bullish position in MMI at the beginning of this year. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Royce & Associates, led by Chuck Royce, holds the largest position in Marcus & Millichap Inc (NYSE:MMI). Royce & Associates has a $63.2 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is Route One Investment Company, led by William Duhamel, holding a $29.8 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Some other peers that hold long positions include Israel Englander’s Millennium Management, one of the largest hedge funds in the world, Phil Frohlich’s Prescott Group Capital Management and Jim Simons’s Renaissance Technologies. We should note that none of these elite funds are among our list of the 100 best performing elite funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually cut their positions entirely. It’s worth mentioning that David Costen Haley’s HBK Investments cut the largest investment of all the investors monitored by Insider Monkey, comprising close to $0.5 million in stock. Ken Griffin’s fund, Citadel Investment Group, also cut its stock, about $0.4 million worth.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Marcus & Millichap Inc (NYSE:MMI) but similarly valued. These stocks are Surgery Partners Inc (NASDAQ:SGRY), Lannett Company, Inc. (NYSEAMEX:LCI), Array Biopharma Inc (NASDAQ:ARRY), and Red Rock Resorts Inc (NASDAQ:RRR). This group of stocks’ market values are closest to MMI’s market value.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $173 million. That figure was $100 million in MMI’s case. Array Biopharma Inc (NASDAQ:ARRY) is the most popular stock in this table. On the other hand Surgery Partners Inc (NASDAQ:SGRY) is the least popular one with only 7 bullish hedge fund positions. Marcus & Millichap Inc (NYSE:MMI) 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. In this regard ARRY might be a better candidate to consider taking a long position in.