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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Monro Inc (NASDAQ:MNRO).
Is Monro Inc (NASDAQ:MNRO) the right investment to pursue these days? The smart money was in a pessimistic mood. The number of long hedge fund positions shrunk by 2 lately. Monro Inc (NASDAQ:MNRO) was in 10 hedge funds' portfolios at the end of June. The all time high for this statistic is 18. Our calculations also showed that MNRO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Donald Sussman of Paloma Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let's take a look at the recent hedge fund action regarding Monro Inc (NASDAQ:MNRO).
Do Hedge Funds Think MNRO Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MNRO over the last 24 quarters. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Steve Cohen's Point72 Asset Management has the biggest position in Monro Inc (NASDAQ:MNRO), worth close to $7.1 million, accounting for less than 0.1%% of its total 13F portfolio. Coming in second is GAMCO Investors, led by Mario Gabelli, holding a $3.8 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions encompass D. E. Shaw's D E Shaw, Israel Englander's Millennium Management and Brandon Haley's Holocene Advisors. In terms of the portfolio weights assigned to each position Engineers Gate Manager allocated the biggest weight to Monro Inc (NASDAQ:MNRO), around 0.07% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.06 percent of its 13F equity portfolio to MNRO.
Judging by the fact that Monro Inc (NASDAQ:MNRO) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedge funds that slashed their positions entirely heading into Q3. Interestingly, Lee Ainslie's Maverick Capital dumped the largest investment of the 750 funds tracked by Insider Monkey, valued at about $1.4 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund said goodbye to about $0.8 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q3.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Monro Inc (NASDAQ:MNRO) but similarly valued. We will take a look at Hostess Brands, Inc. (NASDAQ:TWNK), Virtus Investment Partners Inc (NASDAQ:VRTS), B&G Foods, Inc. (NYSE:BGS), Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), Realogy Holdings Corp (NYSE:RLGY), Revance Therapeutics Inc (NASDAQ:RVNC), and Rush Enterprises, Inc. (NASDAQ:RUSHB). All of these stocks' market caps resemble MNRO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TWNK,32,438884,-2 VRTS,21,165409,1 BGS,10,10330,0 DCPH,23,568335,0 RLGY,18,277899,-4 RVNC,12,153216,2 RUSHB,5,46515,1 Average,17.3,237227,-0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.3 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $25 million in MNRO's case. Hostess Brands, Inc. (NASDAQ:TWNK) is the most popular stock in this table. On the other hand Rush Enterprises, Inc. (NASDAQ:RUSHB) is the least popular one with only 5 bullish hedge fund positions. Monro Inc (NASDAQ:MNRO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MNRO is 28.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and surpassed the market again by 6.2 percentage points. Unfortunately MNRO wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MNRO investors were disappointed as the stock returned -3.1% since the end of June (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.