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Were Hedge Funds Right About Madison Square Garden Sports Corp. (MSG) ?

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  • MSGS

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Madison Square Garden Sports Corp. (NYSE:MSG) based on that data and determine whether they were really smart about the stock.

Madison Square Garden Sports Corp. (NYSE:MSG) has experienced a decrease in hedge fund interest lately. Our calculations also showed that MSG isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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 58 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.

[caption id="attachment_337903" align="aligncenter" width="398"]

Clifton Robbins Blue Harbour
Clifton Robbins Blue Harbour

Clifton S. Robbins of Blue Harbour Group[/caption]

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's review the new hedge fund action regarding Madison Square Garden Sports Corp. (NYSE:MSG).

How are hedge funds trading Madison Square Garden Sports Corp. (NYSE:MSG)?

Heading into the second quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the fourth quarter of 2019. On the other hand, there were a total of 52 hedge funds with a bullish position in MSG a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey's hedge fund database, Silver Lake Partners, managed by Jim Davidson, Dave Roux and Glenn Hutchins, holds the biggest position in Madison Square Garden Sports Corp. (NYSE:MSG). Silver Lake Partners has a $401.7 million position in the stock, comprising 11.9% of its 13F portfolio. On Silver Lake Partners's heels is Luxor Capital Group, managed by Christian Leone, which holds a $166.7 million position; the fund has 5% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise John Khoury's Long Pond Capital, Clifton S. Robbins's Blue Harbour Group and Mario Gabelli's GAMCO Investors. In terms of the portfolio weights assigned to each position Blue Harbour Group allocated the biggest weight to Madison Square Garden Sports Corp. (NYSE:MSG), around 28.7% of its 13F portfolio. Silver Lake Partners is also relatively very bullish on the stock, setting aside 11.91 percent of its 13F equity portfolio to MSG.

Seeing as Madison Square Garden Sports Corp. (NYSE:MSG) has faced declining sentiment from the aggregate hedge fund industry, it's easy to see that there was a specific group of fund managers who were dropping their entire stakes heading into Q4. Intriguingly, Kenneth Mario Garschina's Mason Capital Management said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, worth close to $85.1 million in stock, and Benjamin Pass's TOMS Capital was right behind this move, as the fund dropped about $39.3 million worth. These transactions are important to note, as total hedge fund interest was cut by 2 funds heading into Q4.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Madison Square Garden Sports Corp. (NYSE:MSG) but similarly valued. These stocks are Athene Holding Ltd. (NYSE:ATH), Ingredion Incorporated (NYSE:INGR), Aramark (NYSE:ARMK), and Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS). This group of stocks' market values are similar to MSG's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ATH,32,841044,-3 INGR,18,177212,-5 ARMK,29,595601,-7 SBS,8,218391,-4 Average,21.75,458062,-4.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $458 million. That figure was $1449 million in MSG's case. Athene Holding Ltd. (NYSE:ATH) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP (NYSE:SBS) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Madison Square Garden Sports Corp. (NYSE:MSG) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately MSG wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MSG were disappointed as the stock returned -30.5% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Get real-time email alerts: Follow Msg Networks Inc. (NYSE:MSGN)

Disclosure: None. This article was originally published at Insider Monkey.

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