Did Hedge Funds Make The Right Call On MGM Growth Properties LLC (MGP) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtMGM Growth Properties LLC (NYSE:MGP) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is MGM Growth Properties LLC (NYSE:MGP) undervalued? Money managers were reducing their bets on the stock. The number of bullish hedge fund positions were cut by 1 in recent months. Our calculations also showed that MGP isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). MGP was in 28 hedge funds’ portfolios at the end of March. There were 29 hedge funds in our database with MGP positions at the end of the previous quarter.

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the fresh hedge fund action regarding MGM Growth Properties LLC (NYSE:MGP).

What have hedge funds been doing with MGM Growth Properties LLC (NYSE:MGP)?

At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MGP over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Stuart J. Zimmer’s Zimmer Partners has the biggest position in MGM Growth Properties LLC (NYSE:MGP), worth close to $137.9 million, comprising 3.1% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, led by Ken Griffin, holding a $79.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions contain Steve Cohen’s Point72 Asset Management, Clifton S. Robbins’s Blue Harbour Group and David Brown’s Hawk Ridge Management. In terms of the portfolio weights assigned to each position 1060 Capital Management allocated the biggest weight to MGM Growth Properties LLC (NYSE:MGP), around 12.63% of its 13F portfolio. Mountaineer Partners Management is also relatively very bullish on the stock, setting aside 9.85 percent of its 13F equity portfolio to MGP.

Seeing as MGM Growth Properties LLC (NYSE:MGP) has witnessed bearish sentiment from hedge fund managers, we can see that there were a few funds that slashed their positions entirely heading into Q4. Intriguingly, Renaissance Technologies dumped the biggest stake of the 750 funds followed by Insider Monkey, valued at close to $38.9 million in stock, and Charles Davidson and Joseph Jacobs’s Wexford Capital was right behind this move, as the fund dumped about $24 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as MGM Growth Properties LLC (NYSE:MGP) but similarly valued. These stocks are MongoDB, Inc. (NASDAQ:MDB), United Airlines Holdings Inc (NASDAQ:UAL), VICI Properties Inc. (NYSE:VICI), and SVB Financial Group (NASDAQ:SIVB). This group of stocks’ market values are similar to MGP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MDB 30 770189 -2
UAL 41 1908897 -21
VICI 36 921752 -1
SIVB 30 383904 -5
Average 34.25 996186 -7.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $996 million. That figure was $547 million in MGP’s case. United Airlines Holdings Inc (NASDAQ:UAL) is the most popular stock in this table. On the other hand MongoDB, Inc. (NASDAQ:MDB) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks MGM Growth Properties LLC (NYSE:MGP) is even less popular than MDB. Hedge funds dodged a bullet by taking a bearish stance towards MGP. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately MGP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); MGP investors were disappointed as the stock returned 17.1% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.