In this article we will check out the progression of hedge fund sentiment towards Medley Management Inc (NYSE:MDLY) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Medley Management Inc (NYSE:MDLY) an excellent investment today? Hedge funds are in a pessimistic mood. The number of long hedge fund bets shrunk by 1 in recent months. Our calculations also showed that MDLY isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 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.
[caption id="attachment_27209" align="aligncenter" width="400"] Jim Simons of Renaissance Technologies[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital's Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a gander at the fresh hedge fund action surrounding Medley Management Inc (NYSE:MDLY).
How have hedgies been trading Medley Management Inc (NYSE:MDLY)?
At Q1's end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MDLY over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Springhouse Capital Management held the most valuable stake in Medley Management Inc (NYSE:MDLY), which was worth $0.3 million at the end of the third quarter. On the second spot was Kingstown Capital Management which amassed $0.2 million worth of shares. Renaissance Technologies was 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 Springhouse Capital Management allocated the biggest weight to Medley Management Inc (NYSE:MDLY), around 0.34% of its 13F portfolio. Kingstown Capital Management is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to MDLY.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Shoals Capital Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified MDLY as a viable investment and initiated a position in the stock.
Let's also examine hedge fund activity in other stocks similar to Medley Management Inc (NYSE:MDLY). These stocks are Build-A-Bear Workshop, Inc (NYSE:BBW), BioHiTech Global, Inc. (NASDAQ:BHTG), National Holdings Corporation (NASDAQ:NHLD), and BroadVision, Inc. (NASDAQ:BVSN). This group of stocks' market valuations are similar to MDLY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBW,10,5067,-1 BHTG,1,41,-1 NHLD,1,78,0 BVSN,3,767,2 Average,3.75,1488,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.75 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $1 million in MDLY's case. Build-A-Bear Workshop, Inc (NYSE:BBW) is the most popular stock in this table. On the other hand BioHiTech Global, Inc. (NASDAQ:BHTG) is the least popular one with only 1 bullish hedge fund positions. Medley Management Inc (NYSE:MDLY) 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 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 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately MDLY wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MDLY investors were disappointed as the stock returned -45.6% during the second quarter 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.