Were Hedge Funds Right About Embracing Madison Square Garden Sports Corp. (MSGS)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Madison Square Garden Sports Corp. (NYSE:MSGS)? The smart money sentiment can provide an answer to this question.

Madison Square Garden Sports Corp. (NYSE:MSGS) shareholders have witnessed an increase in support from the world’s most elite money managers lately. Madison Square Garden Sports Corp. (NYSE:MSGS) was in 43 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 52. Our calculations also showed that MSGS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most shareholders, hedge funds are assumed to be underperforming, old investment vehicles of yesteryear. While there are over 8000 funds trading at the moment, Our researchers choose to focus on the aristocrats of this club, approximately 850 funds. It is estimated that this group of investors control the majority of the hedge fund industry’s total capital, and by monitoring their top stock picks, Insider Monkey has discovered numerous investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Clifton Robbins - Blue Harbour

Clifton Robbins of Blue Harbour Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a peek at the fresh hedge fund action encompassing Madison Square Garden Sports Corp. (NYSE:MSGS).

What have hedge funds been doing with Madison Square Garden Sports Corp. (NYSE:MSGS)?

Heading into the third quarter of 2020, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. On the other hand, there were a total of 50 hedge funds with a bullish position in MSGS a year ago. So, let’s review 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, Jim Davidson, Dave Roux and Glenn Hutchins’s Silver Lake Partners has the number one position in Madison Square Garden Sports Corp. (NYSE:MSGS), worth close to $279.1 million, amounting to 9.2% of its total 13F portfolio. On Silver Lake Partners’s heels is Blue Harbour Group, led by Clifton S. Robbins, holding a $122.7 million position; the fund has 34.8% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions encompass John Khoury’s Long Pond Capital, Mario Gabelli’s GAMCO Investors and Daniel Sundheim’s D1 Capital Partners. In terms of the portfolio weights assigned to each position Blue Harbour Group allocated the biggest weight to Madison Square Garden Sports Corp. (NYSE:MSGS), around 34.76% of its 13F portfolio. Silver Lake Partners is also relatively very bullish on the stock, dishing out 9.19 percent of its 13F equity portfolio to MSGS.

As one would reasonably expect, key money managers were leading the bulls’ herd. D1 Capital Partners, managed by Daniel Sundheim, assembled the most outsized position in Madison Square Garden Sports Corp. (NYSE:MSGS). D1 Capital Partners had $71.9 million invested in the company at the end of the quarter. Marc Majzner’s Clearline Capital also made a $3.6 million investment in the stock during the quarter. The other funds with brand new MSGS positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Israel Englander’s Millennium Management, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Madison Square Garden Sports Corp. (NYSE:MSGS) but similarly valued. These stocks are Affiliated Managers Group, Inc. (NYSE:AMG), Blackstone Mortgage Trust Inc (NYSE:BXMT), Carter’s, Inc. (NYSE:CRI), Allakos Inc. (NASDAQ:ALLK), Rexnord Corp (NYSE:RXN), ASGN Incorporated (NYSE:ASGN), and Companhia Brasileira de Distrib. (NYSE:CBD). This group of stocks’ market caps resemble MSGS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMG 27 355173 0
BXMT 24 160654 5
CRI 33 268651 10
ALLK 14 311817 2
RXN 27 348031 8
ASGN 13 73867 -6
CBD 6 19316 1
Average 20.6 219644 2.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.6 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $966 million in MSGS’s case. Carter’s, Inc. (NYSE:CRI) is the most popular stock in this table. On the other hand Companhia Brasileira de Distrib. (NYSE:CBD) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Madison Square Garden Sports Corp. (NYSE:MSGS) is more popular among hedge funds. Our overall hedge fund sentiment score for MSGS is 81.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Unfortunately MSGS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MSGS were disappointed as the stock returned 5.9% since the end of the second quarter (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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