Hedge Funds Are Selling The Madison Square Garden Company (MSG)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on September 30th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded The Madison Square Garden Company (NYSE:MSG) based on those filings.

The Madison Square Garden Company (NYSE:MSG) has seen a decrease in hedge fund sentiment in recent months. Our calculations also showed that MSG 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 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 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 stocks that are in our short portfolio.

Mario Gabelli of GAMCO Investors

Mario Gabelli of GAMCO Investors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s review the new hedge fund action surrounding The Madison Square Garden Company (NYSE:MSG).

What does smart money think about The Madison Square Garden Company (NYSE:MSG)?

At the end of the third quarter, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. On the other hand, there were a total of 40 hedge funds with a bullish position in MSG a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with MSG Positions

More specifically, Silver Lake Partners was the largest shareholder of The Madison Square Garden Company (NYSE:MSG), with a stake worth $500.7 million reported as of the end of September. Trailing Silver Lake Partners was Blue Harbour Group, which amassed a stake valued at $210 million. GAMCO Investors, Long Pond Capital, and Mason Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. 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 portfolio. Blue Harbour Group is also relatively very bullish on the stock, dishing out 12.31 percent of its 13F equity portfolio to MSG.

Seeing as The Madison Square Garden Company (NYSE:MSG) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedge funds who sold off their full holdings heading into Q4. Interestingly, David Thomas’s Atalan Capital dropped the biggest stake of the 750 funds followed by Insider Monkey, totaling close to $89.6 million in stock, and Jim Simons’s Renaissance Technologies was right behind this move, as the fund sold off about $52.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 5 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to The Madison Square Garden Company (NYSE:MSG). We will take a look at Morningstar, Inc. (NASDAQ:MORN), Encompass Health Corporation (NYSE:EHC), People’s United Financial, Inc. (NASDAQ:PBCT), and InterXion Holding NV (NYSE:INXN). All of these stocks’ market caps match MSG’s market cap.

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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 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 4.4% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market in Q4.

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