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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Vail Resorts, Inc. (NYSE:MTN).
Is MTN a good stock to buy? The best stock pickers were cutting their exposure. The number of long hedge fund bets fell by 7 in recent months. Vail Resorts, Inc. (NYSE:MTN) was in 30 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 39. Our calculations also showed that MTN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 37 hedge funds in our database with MTN positions at the end of the second quarter.
Video: 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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.
John Zaro of Bourgeon Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we're going to check out the latest hedge fund action encompassing Vail Resorts, Inc. (NYSE:MTN).
Do Hedge Funds Think MTN Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MTN over the last 21 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Robert Joseph Caruso's Select Equity Group has the biggest position in Vail Resorts, Inc. (NYSE:MTN), worth close to $493.5 million, amounting to 2.4% of its total 13F portfolio. Sitting at the No. 2 spot is Diamond Hill Capital, managed by Ric Dillon, which holds a $111.5 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism comprise John W. Rogers's Ariel Investments, Josh Resnick's Jericho Capital Asset Management and Kerr Neilson's Platinum Asset Management. In terms of the portfolio weights assigned to each position Akaris Global Partners allocated the biggest weight to Vail Resorts, Inc. (NYSE:MTN), around 6.51% of its 13F portfolio. Kettle Hill Capital Management is also relatively very bullish on the stock, setting aside 4.36 percent of its 13F equity portfolio to MTN.
Because Vail Resorts, Inc. (NYSE:MTN) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there is a sect of funds that decided to sell off their entire stakes in the third quarter. Intriguingly, Richard Merage's MIG Capital dropped the largest investment of the 750 funds watched by Insider Monkey, valued at about $30.1 million in stock. James Woodson Davis's fund, Woodson Capital Management, also sold off its stock, about $12.8 million worth. These moves are interesting, as total hedge fund interest dropped by 7 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Vail Resorts, Inc. (NYSE:MTN) but similarly valued. These stocks are The Carlyle Group Inc (NASDAQ:CG), Lyft, Inc. (NASDAQ:LYFT), Aspen Technology, Inc. (NASDAQ:AZPN), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Farfetch Limited (NYSE:FTCH), GDS Holdings Limited (NASDAQ:GDS), and Sociedad Química y Minera de Chile S.A. (NYSE:SQM). This group of stocks' market values match MTN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CG,14,190841,6 LYFT,32,542062,2 AZPN,26,1094956,-2 KOF,6,332919,1 FTCH,40,1224948,3 GDS,47,2723060,4 SQM,12,115706,-2 Average,25.3,889213,1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $889 million. That figure was $892 million in MTN's case. GDS Holdings Limited (NASDAQ:GDS) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 6 bullish hedge fund positions. Vail Resorts, Inc. (NYSE:MTN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MTN is 50.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on MTN as the stock returned 28.2% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.