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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 MGM Growth Properties LLC (NYSE:MGP) and determine whether hedge funds skillfully traded this stock.
MGM Growth Properties LLC (NYSE:MGP) shareholders have witnessed an increase in enthusiasm from smart money recently. MGM Growth Properties LLC (NYSE:MGP) was in 32 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MGP 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.
At the moment there are dozens of methods stock market investors put to use to assess publicly traded companies. Two of the most innovative methods are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the top fund managers can trounce the broader indices by a solid margin (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let's analyze the latest hedge fund action surrounding MGM Growth Properties LLC (NYSE:MGP).
How have hedgies been trading MGM Growth Properties LLC (NYSE:MGP)?
At the end of June, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in MGP a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Zimmer Partners held the most valuable stake in MGM Growth Properties LLC (NYSE:MGP), which was worth $136.1 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $119.4 million worth of shares. Echo Street Capital Management, Governors Lane, and Blue Harbour Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Blue Harbour Group allocated the biggest weight to MGM Growth Properties LLC (NYSE:MGP), around 9.13% of its 13F portfolio. BlueMar Capital Management is also relatively very bullish on the stock, setting aside 6.95 percent of its 13F equity portfolio to MGP.
Now, key hedge funds were breaking ground themselves. Owl Creek Asset Management, managed by Jeffrey Altman, initiated the most valuable position in MGM Growth Properties LLC (NYSE:MGP). Owl Creek Asset Management had $26.6 million invested in the company at the end of the quarter. Charles Fitzgerald's V3 Capital also initiated a $13.1 million position during the quarter. The other funds with new positions in the stock are Richard Driehaus's Driehaus Capital, John Bader's Halcyon Asset Management, and Daniel Johnson's Gillson Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as MGM Growth Properties LLC (NYSE:MGP) but similarly valued. These stocks are Kinross Gold Corporation (NYSE:KGC), PTC Inc (NASDAQ:PTC), Dropbox, Inc. (NASDAQ:DBX), Autohome Inc (NYSE:ATHM), Banco de Chile (NYSE:BCH), Lennox International Inc. (NYSE:LII), and Centrais Eletricas Brasileiras SA (NYSE:EBR). This group of stocks' market values are similar to MGP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KGC,30,806038,2 PTC,40,1255947,5 DBX,51,1326475,7 ATHM,24,820669,9 BCH,3,38541,-1 LII,24,258111,3 EBR,8,10334,3 Average,25.7,645159,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.7 hedge funds with bullish positions and the average amount invested in these stocks was $645 million. That figure was $570 million in MGP's case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 3 bullish hedge fund positions. MGM Growth Properties LLC (NYSE:MGP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MGP is 69.2. 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 positive signal but 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately MGP wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MGP were disappointed as the stock returned 5.3% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.