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 M.D.C. Holdings, Inc. (NYSE:MDC).
Is M.D.C. Holdings, Inc. (NYSE:MDC) an excellent investment right now? The best stock pickers are in a bullish mood. The number of bullish hedge fund positions increased by 5 recently. Our calculations also showed that MDC isn't among the 30 most popular stocks among hedge funds. MDC was in 16 hedge funds' portfolios at the end of December. There were 11 hedge funds in our database with MDC positions at the end of the previous quarter.
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 market by 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a look at the fresh hedge fund action regarding M.D.C. Holdings, Inc. (NYSE:MDC).
What does the smart money think about M.D.C. Holdings, Inc. (NYSE:MDC)?
Heading into the first quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 45% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in MDC a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey's hedge fund database, ZWEIG DIMENNA PARTNERS, managed by Joe DiMenna, holds the biggest position in M.D.C. Holdings, Inc. (NYSE:MDC). ZWEIG DIMENNA PARTNERS has a $23.6 million position in the stock, comprising 2.3% of its 13F portfolio. Coming in second is Brian Ashford-Russell and Tim Woolley of Polar Capital, with a $18.6 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining peers that hold long positions contain Chuck Royce's Royce & Associates, Steve Leonard's Pacifica Capital Investments and Israel Englander's Millennium Management.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into M.D.C. Holdings, Inc. (NYSE:MDC) headfirst. ZWEIG DIMENNA PARTNERS, managed by Joe DiMenna, assembled the biggest position in M.D.C. Holdings, Inc. (NYSE:MDC). ZWEIG DIMENNA PARTNERS had $23.6 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $7.9 million investment in the stock during the quarter. The other funds with brand new MDC positions are Jim Simons's Renaissance Technologies, D. E. Shaw's D E Shaw, and Mark N. Diker's Diker Management.
Let's check out hedge fund activity in other stocks similar to M.D.C. Holdings, Inc. (NYSE:MDC). These stocks are BEST Inc. (NYSE:BSTI), Hudson Ltd. (NYSE:HUD), Atara Biotherapeutics Inc (NASDAQ:ATRA), and Nexa Resources S.A. (NYSE:NEXA). This group of stocks' market values match MDC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BSTI,9,37305,-3 HUD,12,53652,-8 ATRA,11,566114,-1 NEXA,10,18594,1 Average,10.5,168916,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $169 million. That figure was $108 million in MDC's case. Hudson Ltd. (NYSE:HUD) is the most popular stock in this table. On the other hand BEST Inc. (NYSE:BSTI) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks M.D.C. Holdings, Inc. (NYSE:MDC) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately MDC wasn't nearly as popular as these 15 stock and hedge funds that were betting on MDC were disappointed as the stock returned 9.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.