The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Marriott Vacations Worldwide Corporation (NYSE:VAC) and find out how it is affected by hedge funds' moves.
Hedge fund interest in Marriott Vacations Worldwide Corporation (NYSE:VAC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare VAC to other stocks including CoreSite Realty Corp (NYSE:COR), Mercury Systems Inc (NASDAQ:MRCY), and Aurora Cannabis Inc. (NYSE:ACB) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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.
[caption id="attachment_339343" align="aligncenter" width="500"] Brad Farber of Atika Capital[/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 view the recent hedge fund action encompassing Marriott Vacations Worldwide Corporation (NYSE:VAC).
Hedge fund activity in Marriott Vacations Worldwide Corporation (NYSE:VAC)
Heading into the fourth quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in VAC a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Marriott Vacations Worldwide Corporation (NYSE:VAC) was held by Rima Senvest Management, which reported holding $179.6 million worth of stock at the end of September. It was followed by Iridian Asset Management with a $119.5 million position. Other investors bullish on the company included Nantahala Capital Management, Balyasny Asset Management, and Tremblant Capital. In terms of the portfolio weights assigned to each position FrontFour Capital Group allocated the biggest weight to Marriott Vacations Worldwide Corporation (NYSE:VAC), around 24.62% of its portfolio. Rima Senvest Management is also relatively very bullish on the stock, dishing out 15.48 percent of its 13F equity portfolio to VAC.
Since Marriott Vacations Worldwide Corporation (NYSE:VAC) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few money managers that elected to cut their entire stakes in the third quarter. Interestingly, Michael Johnston's Steelhead Partners dropped the largest position of all the hedgies monitored by Insider Monkey, comprising an estimated $9.7 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund dumped about $4.7 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Marriott Vacations Worldwide Corporation (NYSE:VAC). These stocks are CoreSite Realty Corp (NYSE:COR), Mercury Systems Inc (NASDAQ:MRCY), Aurora Cannabis Inc. (NYSE:ACB), and Luckin Coffee Inc. (NASDAQ:LK). All of these stocks' market caps are closest to VAC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COR,14,265606,0 MRCY,22,112572,1 ACB,10,17463,0 LK,23,300025,-8 Average,17.25,173917,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $174 million. That figure was $489 million in VAC's case. Luckin Coffee Inc. (NASDAQ:LK) is the most popular stock in this table. On the other hand Aurora Cannabis Inc. (NYSE:ACB) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Marriott Vacations Worldwide Corporation (NYSE:VAC) is more popular among hedge funds. 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. Hedge funds were also right about betting on VAC as the stock returned 18.6% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.