We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards The Macerich Company (NYSE:MAC) and determine whether hedge funds skillfully traded this stock.
The Macerich Company (NYSE:MAC) shareholders have witnessed a decrease in hedge fund interest lately. The Macerich Company (NYSE:MAC) was in 20 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. Our calculations also showed that MAC 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.
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 56 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
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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 view the key hedge fund action regarding The Macerich Company (NYSE:MAC).
How are hedge funds trading The Macerich Company (NYSE:MAC)?
Heading into the third quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MAC over the last 20 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 Arrowstreet Capital, which reported holding $24.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $19.3 million position. Other investors bullish on the company included Long Pond Capital, Third Avenue Management, and OZ Management. In terms of the portfolio weights assigned to each position Long Pond Capital allocated the biggest weight to The Macerich Company (NYSE:MAC), around 0.61% of its 13F portfolio. Third Avenue Management is also relatively very bullish on the stock, designating 0.47 percent of its 13F equity portfolio to MAC.
Since The Macerich Company (NYSE:MAC) has experienced falling interest from the aggregate hedge fund industry, it's easy to see that there is a sect of money managers that slashed their positions entirely in the second quarter. Interestingly, Jonathan Kolatch's Redwood Capital Management dumped the largest position of all the hedgies tracked by Insider Monkey, totaling an estimated $3.1 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also cut its stock, about $2.9 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds in the second quarter.
Let's also examine 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 Gentherm Inc (NASDAQ:THRM), The Bank of N.T. Butterfield & Son Limited (NYSE:NTB), Coherus Biosciences Inc (NASDAQ:CHRS), Covanta Holding Corporation (NYSE:CVA), Sangamo Therapeutics, Inc. (NASDAQ:SGMO), Constellation Pharmaceuticals, Inc. (NASDAQ:CNST), and Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC). All of these stocks' market caps are similar to MAC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THRM,13,68323,2 NTB,15,64066,-3 CHRS,26,192516,-9 CVA,21,76242,-4 SGMO,22,88068,1 CNST,35,452665,10 TRHC,8,34469,1 Average,20,139478,-0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $76 million in MAC's case. Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) is the most popular stock in this table. On the other hand Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC) is the least popular one with only 8 bullish hedge fund positions. The Macerich Company (NYSE:MAC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MAC is 42. 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. 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 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately MAC wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MAC investors were disappointed as the stock returned -22.9% in the third quarter 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.