Did Hedge Funds Make The Right Call On Magna International Inc. (MGA)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Magna International Inc. (NYSE:MGA) and determine whether the smart money was really smart about this stock.

Is Magna International Inc. (NYSE:MGA) a healthy stock for your portfolio? The smart money was taking a pessimistic view. The number of bullish hedge fund positions went down by 1 lately. Our calculations also showed that MGA 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s analyze the key hedge fund action regarding Magna International Inc. (NYSE:MGA).

How are hedge funds trading Magna International Inc. (NYSE:MGA)?

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the fourth quarter of 2019. On the other hand, there were a total of 27 hedge funds with a bullish position in MGA a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in Magna International Inc. (NYSE:MGA), which was worth $188.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $48.7 million worth of shares. D E Shaw, East Side Capital (RR Partners), and Heathbridge Capital Management 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 East Side Capital (RR Partners) allocated the biggest weight to Magna International Inc. (NYSE:MGA), around 5.62% of its 13F portfolio. Heathbridge Capital Management is also relatively very bullish on the stock, dishing out 4.85 percent of its 13F equity portfolio to MGA.

Judging by the fact that Magna International Inc. (NYSE:MGA) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few funds that decided to sell off their full holdings in the first quarter. At the top of the heap, Javier Velazquez’s Albar Capital sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $3.2 million in stock. Mike Vranos’s fund, Ellington, also said goodbye to its stock, about $0.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Magna International Inc. (NYSE:MGA) but similarly valued. These stocks are Booz Allen Hamilton Holding Corporation (NYSE:BAH), Masco Corporation (NYSE:MAS), Agnico Eagle Mines Limited (NYSE:AEM), and W.R. Berkley Corporation (NYSE:WRB). This group of stocks’ market caps are similar to MGA’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $342 million. That figure was $413 million in MGA’s case. Masco Corporation (NYSE:MAS) is the most popular stock in this table. On the other hand Agnico Eagle Mines Limited (NYSE:AEM) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Magna International Inc. (NYSE:MGA) is even less popular than AEM. Hedge funds clearly dropped the ball on MGA as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on MGA as the stock returned 40.9% in the second quarter and outperformed the market by an even larger margin.

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