We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether The Macerich Company (NYSE:MAC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is The Macerich Company (NYSE:MAC) a buy right now? Prominent investors are in a bullish mood. The number of long hedge fund bets inched up by 3 lately. Our calculations also showed that MAC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 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 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.
Martin Whitman of Third Avenue Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the new hedge fund action regarding The Macerich Company (NYSE:MAC).
Hedge fund activity in The Macerich Company (NYSE:MAC)
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MAC over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The Macerich Company (NYSE:MAC) was held by Citadel Investment Group, which reported holding $49.9 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $46.9 million position. Other investors bullish on the company included Third Avenue Management, Millennium Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to The Macerich Company (NYSE:MAC), around 3.67% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, earmarking 2.53 percent of its 13F equity portfolio to MAC.
As aggregate interest increased, some big names have jumped into The Macerich Company (NYSE:MAC) headfirst. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, initiated the most valuable position in The Macerich Company (NYSE:MAC). LMR Partners had $4.4 million invested in the company at the end of the quarter. J. Alan Reid, Jr.’s Forward Management also made a $4.4 million investment in the stock during the quarter. The following funds were also among the new MAC investors: Donald Sussman’s Paloma Partners, James Thomas Berylson’s Berylson Capital Partners, and Minhua Zhang’s Weld Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Macerich Company (NYSE:MAC) but similarly valued. We will take a look at Ormat Technologies, Inc. (NYSE:ORA), Nektar Therapeutics (NASDAQ:NKTR), Axsome Therapeutics, Inc. (NASDAQ:AXSM), and Viper Energy Partners LP (NASDAQ:VNOM). This group of stocks’ market caps match MAC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ORA | 16 | 193093 | -1 |
| NKTR | 26 | 230140 | 7 |
| AXSM | 25 | 576913 | 9 |
| VNOM | 16 | 102830 | 1 |
| Average | 20.75 | 275744 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $276 million. That figure was $223 million in MAC’s case. Nektar Therapeutics (NASDAQ:NKTR) is the most popular stock in this table. On the other hand Ormat Technologies, Inc. (NYSE:ORA) is the least popular one with only 16 bullish hedge fund positions. The Macerich Company (NYSE:MAC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately MAC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MAC were disappointed as the stock returned -70.3% during the same time period 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 many of these stocks already outperformed the market so far this year.
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.
