While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Marcus & Millichap Inc (NYSE:MMI).
Is Marcus & Millichap Inc (NYSE:MMI) a bargain? The smart money was taking a bearish view. The number of long hedge fund positions retreated by 3 lately. Marcus & Millichap Inc (NYSE:MMI) was in 5 hedge funds' portfolios at the end of September. The all time high for this statistics is 18. Our calculations also showed that MMI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 8 hedge funds in our database with MMI holdings at the end of June. Video: Watch our video about the top 5 most popular hedge fund stocks.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Roger Ibbotson of Zebra Capital 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 recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Now let's view the new hedge fund action encompassing Marcus & Millichap Inc (NYSE:MMI).
How have hedgies been trading Marcus & Millichap Inc (NYSE:MMI)?
Heading into the fourth quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MMI over the last 21 quarters. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Marcus & Millichap Inc (NYSE:MMI) was held by Royce & Associates, which reported holding $62.6 million worth of stock at the end of September. It was followed by Sprott Asset Management with a $3 million position. Other investors bullish on the company included Winton Capital Management, Zebra Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Marcus & Millichap Inc (NYSE:MMI), around 0.68% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 0.67 percent of its 13F equity portfolio to MMI.
Since Marcus & Millichap Inc (NYSE:MMI) has experienced bearish sentiment from the smart money, it's easy to see that there was a specific group of hedgies that slashed their full holdings by the end of the third quarter. Interestingly, Ken Griffin's Citadel Investment Group dumped the largest stake of all the hedgies monitored by Insider Monkey, totaling about $1 million in stock. Noam Gottesman's fund, GLG Partners, also cut its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 3 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Marcus & Millichap Inc (NYSE:MMI) but similarly valued. These stocks are Cadence Bancorporation (NYSE:CADE), The Pennant Group, Inc. (NASDAQ:PNTG), Linx S.A. (NYSE:LINX), Kaman Corporation (NYSE:KAMN), NextPoint Residential Trust Inc (NYSE:NXRT), Deluxe Corporation (NYSE:DLX), and Atkore International Group Inc. (NYSE:ATKR). This group of stocks' market valuations are closest to MMI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CADE,22,110929,1 PNTG,15,30509,5 LINX,5,33977,2 KAMN,12,138073,-1 NXRT,9,69227,-4 DLX,20,69029,2 ATKR,17,60246,3 Average,14.3,73141,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.3 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $68 million in MMI's case. Cadence Bancorporation (NYSE:CADE) is the most popular stock in this table. On the other hand Linx S.A. (NYSE:LINX) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Marcus & Millichap Inc (NYSE:MMI) is even less popular than LINX. Our overall hedge fund sentiment score for MMI is 10.3. 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. Hedge funds clearly dropped the ball on MMI as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on MMI as the stock returned 31% since Q3 (through November 27th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.