Hedge Fund Darlings vs. The Madison Square Garden Company (MSG) In 2019

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 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority 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’ consensus 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 The Madison Square Garden Company (NYSE:MSG).

Is The Madison Square Garden Company (NYSE:MSG) an exceptional investment today? Hedge funds are taking a bearish view. The number of long hedge fund bets shrunk by 5 in recent months. Our calculations also showed that MSG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clifton Robbins Blue Harbour

Clifton S. Robbins of Blue Harbour Group

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to go over the fresh hedge fund action surrounding The Madison Square Garden Company (NYSE:MSG).

What have hedge funds been doing with The Madison Square Garden Company (NYSE:MSG)?

At Q3’s end, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in MSG over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Silver Lake Partners, managed by Jim Davidson, Dave Roux and Glenn Hutchins, holds the most valuable position in The Madison Square Garden Company (NYSE:MSG). Silver Lake Partners has a $500.7 million position in the stock, comprising 12.1% of its 13F portfolio. Coming in second is Blue Harbour Group, led by Clifton S. Robbins, holding a $210 million position; the fund has 12.3% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Mario Gabelli’s GAMCO Investors, John Khoury’s Long Pond Capital and Kenneth Mario Garschina’s Mason Capital Management. In terms of the portfolio weights assigned to each position Mason Capital Management allocated the biggest weight to The Madison Square Garden Company (NYSE:MSG), around 30.19% of its 13F portfolio. Blue Harbour Group is also relatively very bullish on the stock, dishing out 12.31 percent of its 13F equity portfolio to MSG.

Due to the fact that The Madison Square Garden Company (NYSE:MSG) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedge funds that slashed their positions entirely by the end of the third quarter. At the top of the heap, David Thomas’s Atalan Capital said goodbye to the largest stake of the 750 funds followed by Insider Monkey, worth about $89.6 million in stock, and Renaissance Technologies was right behind this move, as the fund sold off about $52.6 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 5 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to The Madison Square Garden Company (NYSE:MSG). These stocks are Morningstar, Inc. (NASDAQ:MORN), Encompass Health Corporation (NYSE:EHC), People’s United Financial, Inc. (NASDAQ:PBCT), and InterXion Holding NV (NYSE:INXN). This group of stocks’ market values match MSG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MORN 24 258250 4
EHC 22 423218 -1
PBCT 21 140867 3
INXN 29 655643 -5
Average 24 369495 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $369 million. That figure was $1729 million in MSG’s case. InterXion Holding NV (NYSE:INXN) is the most popular stock in this table. On the other hand People’s United Financial, Inc. (NASDAQ:PBCT) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks The Madison Square Garden Company (NYSE:MSG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately MSG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MSG were disappointed as the stock returned 9.8% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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