Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like MSG Networks Inc (NYSE:MSGN).
MSG Networks Inc (NYSE:MSGN) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that MSGN isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s review the new hedge fund action regarding MSG Networks Inc (NYSE:MSGN).
What does the smart money think about MSG Networks Inc (NYSE:MSGN)?
Heading into the first quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MSGN over the last 14 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Ariel Investments, managed by John W. Rogers, holds the largest position in MSG Networks Inc (NYSE:MSGN). Ariel Investments has a $165 million position in the stock, comprising 2.3% of its 13F portfolio. Sitting at the No. 2 spot is Mario Gabelli of GAMCO Investors, with a $47.2 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Noam Gottesman’s GLG Partners and Jim Simons’s Renaissance Technologies.
Since MSG Networks Inc (NYSE:MSGN) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few funds that elected to cut their full holdings heading into Q3. Interestingly, Roberto Mignone’s Bridger Management said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, comprising about $34.7 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund sold off about $7.5 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 3 funds heading into Q3.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as MSG Networks Inc (NYSE:MSGN) but similarly valued. We will take a look at Oasis Petroleum Inc. (NYSE:OAS), Covanta Holding Corporation (NYSE:CVA), Granite Real Estate Investment Trust (NYSE:GRP), and Tenet Healthcare Corp (NYSE:THC). This group of stocks’ market valuations match MSGN’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $256 million. That figure was $264 million in MSGN’s case. Tenet Healthcare Corp (NYSE:THC) is the most popular stock in this table. On the other hand Granite Real Estate Investment Trust (NYSE:GRP) is the least popular one with only 11 bullish hedge fund positions. MSG Networks Inc (NYSE:MSGN) 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. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately MSGN wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); MSGN investors were disappointed as the stock returned -3.1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.