It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like MakeMyTrip Limited (NASDAQ:MMYT).
MakeMyTrip Limited (NASDAQ:MMYT) shareholders have witnessed a decrease in enthusiasm from smart money of late. Our calculations also showed that MMYT isn't among the 30 most popular stocks among hedge funds.
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 new hedge fund action encompassing MakeMyTrip Limited (NASDAQ:MMYT).
What does the smart money think about MakeMyTrip Limited (NASDAQ:MMYT)?
At the end of the fourth quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in MMYT a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, GMT Capital held the most valuable stake in MakeMyTrip Limited (NASDAQ:MMYT), which was worth $14.8 million at the end of the third quarter. On the second spot was QVT Financial which amassed $14.5 million worth of shares. Moreover, Falcon Edge Capital, Renaissance Technologies, and PAR Capital Management were also bullish on MakeMyTrip Limited (NASDAQ:MMYT), allocating a large percentage of their portfolios to this stock.
Due to the fact that MakeMyTrip Limited (NASDAQ:MMYT) has faced falling interest from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers who were dropping their full holdings in the third quarter. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management cut the biggest stake of the 700 funds monitored by Insider Monkey, comprising an estimated $1 million in call options, and Matthew Hulsizer's PEAK6 Capital Management was right behind this move, as the fund said goodbye to about $0.9 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as MakeMyTrip Limited (NASDAQ:MMYT) but similarly valued. We will take a look at Murphy USA Inc. (NYSE:MUSA), Integer Holdings Corporation (NYSE:ITGR), Stantec Inc. (NYSE:STN), and American States Water Co (NYSE:AWR). This group of stocks' market caps are similar to MMYT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MUSA,24,150043,5 ITGR,19,219474,2 STN,4,61347,-1 AWR,12,67657,0 Average,14.75,124630,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $48 million in MMYT's case. Murphy USA Inc. (NYSE:MUSA) is the most popular stock in this table. On the other hand Stantec Inc. (NYSE:STN) is the least popular one with only 4 bullish hedge fund positions. MakeMyTrip Limited (NASDAQ:MMYT) 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 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 MMYT wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); MMYT investors were disappointed as the stock returned 6.7% 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.