We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That's a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is The Macerich Company (NYSE:MAC) ready to rally soon? Investors who are in the know are becoming more confident. The number of long hedge fund positions improved by 1 lately. Our calculations also showed that MAC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). MAC was in 22 hedge funds' portfolios at the end of the third quarter of 2019. There were 21 hedge funds in our database with MAC holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
[caption id="attachment_758450" align="aligncenter" width="600"] Martin Whitman of Third Avenue Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's review the new hedge fund action surrounding The Macerich Company (NYSE:MAC).
What does smart money think about The Macerich Company (NYSE:MAC)?
At Q3's end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the second quarter of 2019. On the other hand, there were a total of 30 hedge funds with a bullish position in MAC a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Third Avenue Management was the largest shareholder of The Macerich Company (NYSE:MAC), with a stake worth $35.3 million reported as of the end of September. Trailing Third Avenue Management was Citadel Investment Group, which amassed a stake valued at $29.1 million. Arrowstreet Capital, Balyasny Asset Management, and Renaissance Technologies 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 Third Avenue Management allocated the biggest weight to The Macerich Company (NYSE:MAC), around 3.19% of its 13F portfolio. Ulysses Management is also relatively very bullish on the stock, earmarking 0.77 percent of its 13F equity portfolio to MAC.
As one would reasonably expect, some big names were breaking ground themselves. Waratah Capital Advisors, managed by Brad Dunkley and Blair Levinsky, established the biggest position in The Macerich Company (NYSE:MAC). Waratah Capital Advisors had $1.8 million invested in the company at the end of the quarter. Renee Yao's Neo Ivy Capital also made a $1.1 million investment in the stock during the quarter. The other funds with brand new MAC positions are Perella Weinberg Partners and Noam Gottesman's GLG Partners.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as The Macerich Company (NYSE:MAC) but similarly valued. These stocks are Selective Insurance Group, Inc. (NASDAQ:SIGI), W.R. Grace & Co. (NYSE:GRA), MGIC Investment Corporation (NYSE:MTG), and Blackbaud, Inc. (NASDAQ:BLKB). All of these stocks' market caps are closest to MAC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SIGI,24,120207,10 GRA,38,1653754,2 MTG,39,566495,4 BLKB,12,72983,2 Average,28.25,603360,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $603 million. That figure was $136 million in MAC's case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand Blackbaud, Inc. (NASDAQ:BLKB) is the least popular one with only 12 bullish hedge fund positions. The Macerich Company (NYSE:MAC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MAC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MAC investors were disappointed as the stock returned -12.5% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.