The Finals are here and predictably the Golden State Warriors are once again in the NBA’s final series. As sure as Stephen Curry’s shooting, popularity and interest in the NBA has grown seemingly every year. As the NBA gets larger and larger, stocks associated with the NBA will benefit. Let’s analyze how the smart money is playing the rise of that trend including NIKE, Inc. (NYSE:NKE), The Madison Square Garden Company (NASDAQ:MSG), Finish Line Inc (NASDAQ:FINL), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), and The Walt Disney Company (NYSE:DIS).
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 market by 38 percentage points since May 2014 through May 15, 2019. Our best performing hedge funds strategy also returned 26.4% year-to-date and outperformed the S&P 500 Index by nearly 12 percentage points (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.
NIKE, Inc. (NYSE:NKE) has big deals with the NBA’s biggest starts including Michael Jordan, Kobe Bryant and Lebron James. The sneaker company also has many deals with other NBA stars across the league. As more people watch the NBA, more people might buy sneakers of Nike sponsored athletes and help Nike deliver shareholder value. Of the around 700-740 elite funds we track, 61 funds owned $1.94 billion of NIKE, Inc. (NYSE:NKE) on December 31, versus 46 funds and $1.92 billion respectively on September 30.
The Madison Square Garden Company (NASDAQ:MSG) is the parent company of the New York Knicks, which is worth an estimated $4 billion according to Forbes. As the NBA increases in popularity, so do likely the Knicks, making them worth more. There is speculation that the Knicks is potentially up for sale for around $5 billion, although there is no confirmation. 46 elite funds had a bullish position in The Madison Square Garden Company (NASDAQ:MSG) at the end of the fourth quarter, up 6 funds from the previous quarter.
Finish Line Inc (NASDAQ:FINL) is a big shoe retailer, and will benefit from more NBA fans. The more NBA fans there are, the more likely basketball shoes are sold. The more basketball shoes are sold, the more Finish Line likely makes in sales.
Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the producer of NBA 2k which benefits if there are more fans from the NBA. Due to virtual reality and augmented reality, there is potential for Take-Two to make its NBA games even better. After doing very well in 2017, and the first part of 2018, shares are relatively flat in 2019. Of the around 700-740 elite funds we track, 58 funds owned $1.7 billion of Take-Two Interactive Software, Inc. (NASDAQ:TTWO) on December 31, versus 58 funds and $2.34 billion respectively on September 30.
The Walt Disney Company (NYSE:DIS) is the owner of ESPN, which has a lot of basketball shows. The more NBA fans there are, the more likely someone watches on of those shows. Disney is coming out with Disney Plus Streaming, something that many investors are excited about. Of the around 700-740 elite funds we track, 71 funds owned $3.41 billion of The Walt Disney Company (NYSE:DIS) on December 31, versus 63 funds and $4.91 billion respectively on September 30.