How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Medical Properties Trust, Inc. (NYSE:MPW).
Medical Properties Trust, Inc. (NYSE:MPW) investors should be aware of a decrease in support from the world's most elite money managers lately. Our calculations also showed that MPW isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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_255014" align="aligncenter" width="450"] Clint Carlson of Carlson Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to view the latest hedge fund action regarding Medical Properties Trust, Inc. (NYSE:MPW).
Hedge fund activity in Medical Properties Trust, Inc. (NYSE:MPW)
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in MPW a year ago. With hedgies' 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).
Among these funds, Cardinal Capital held the most valuable stake in Medical Properties Trust, Inc. (NYSE:MPW), which was worth $133.9 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $38.9 million worth of shares. Carlson Capital, Waterfront Capital Partners, and Citadel Investment Group 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 Cardinal Capital allocated the biggest weight to Medical Properties Trust, Inc. (NYSE:MPW), around 4.42% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, designating 2.64 percent of its 13F equity portfolio to MPW.
Due to the fact that Medical Properties Trust, Inc. (NYSE:MPW) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of funds that elected to cut their entire stakes heading into Q4. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management sold off the largest stake of the 750 funds monitored by Insider Monkey, valued at about $7.1 million in stock. John Overdeck and David Siegel's fund, Two Sigma Advisors, also sold off its stock, about $5.2 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Medical Properties Trust, Inc. (NYSE:MPW) but similarly valued. These stocks are Qorvo Inc (NASDAQ:QRVO), Carlyle Group LP (NASDAQ:CG), Service Corporation International (NYSE:SCI), and Credit Acceptance Corp. (NASDAQ:CACC). This group of stocks' market valuations are closest to MPW's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QRVO,35,1240574,7 CG,7,201850,0 SCI,20,352282,5 CACC,23,1026982,-4 Average,21.25,705422,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $705 million. That figure was $242 million in MPW's case. Qorvo Inc (NASDAQ:QRVO) is the most popular stock in this table. On the other hand Carlyle Group LP (NASDAQ:CG) is the least popular one with only 7 bullish hedge fund positions. Medical Properties Trust, Inc. (NYSE:MPW) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on MPW, though not to the same extent, as the stock returned 6.1% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.