Hedge funds are known to underperform the bull markets but that's not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds' consensus picks on average deliver market beating returns. For example in the first 5 months of this year through May 30th the Standard and Poor’s 500 Index returned approximately 12.1% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds' purchases. We know better. That's why we scrutinize hedge fund sentiment before we invest in a stock like The Marcus Corporation (NYSE:MCS).
The Marcus Corporation (NYSE:MCS) was in 16 hedge funds' portfolios at the end of March. MCS investors should pay attention to an increase in support from the world's most elite money managers recently. There were 11 hedge funds in our database with MCS positions at the end of the previous quarter. Our calculations also showed that MCS isn't among the 30 most popular stocks among hedge funds.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 40 percentage points since May 2014 through May 30, 2019 (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.
We're going to view the key hedge fund action surrounding The Marcus Corporation (NYSE:MCS).
What have hedge funds been doing with The Marcus Corporation (NYSE:MCS)?
Heading into the second quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 45% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in MCS over the last 15 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in The Marcus Corporation (NYSE:MCS) was held by GAMCO Investors, which reported holding $35.2 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $16.5 million position. Other investors bullish on the company included Renaissance Technologies, GLG Partners, and Element Capital Management.
Consequently, some big names were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the biggest position in The Marcus Corporation (NYSE:MCS). Marshall Wace LLP had $1.6 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also initiated a $1.1 million position during the quarter. The following funds were also among the new MCS investors: Israel Englander's Millennium Management, Dmitry Balyasny's Balyasny Asset Management, and Mike Vranos's Ellington.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The Marcus Corporation (NYSE:MCS) but similarly valued. These stocks are US Ecology Inc. (NASDAQ:ECOL), Nabors Industries Ltd. (NYSE:NBR), TTM Technologies, Inc. (NASDAQ:TTMI), and 3D Systems Corporation (NYSE:DDD). This group of stocks' market values are similar to MCS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ECOL,9,14502,-2 NBR,30,175806,-2 TTMI,13,43308,-2 DDD,13,62191,2 Average,16.25,73952,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $97 million in MCS's case. Nabors Industries Ltd. (NYSE:NBR) is the most popular stock in this table. On the other hand US Ecology Inc. (NASDAQ:ECOL) is the least popular one with only 9 bullish hedge fund positions. The Marcus Corporation (NYSE:MCS) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately MCS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MCS investors were disappointed as the stock returned -13.2% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.