Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2014) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Magellan Health Inc (NASDAQ:MGLN).
Is Magellan Health Inc (NASDAQ:MGLN) ready to rally soon? The best stock pickers are reducing their bets on the stock. The number of bullish hedge fund positions dropped by 1 recently. Our calculations also showed that MGLN isn’t among the 30 most popular stocks among hedge funds. MGLN was in 20 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with MGLN holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to check out the latest hedge fund action encompassing Magellan Health Inc (NASDAQ:MGLN).
What does the smart money think about Magellan Health Inc (NASDAQ:MGLN)?
At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in MGLN at the beginning of this year. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies, managed by Jim Simons, holds the number one position in Magellan Health Inc (NASDAQ:MGLN). Renaissance Technologies has a $72.1 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Fisher Asset Management, managed by Ken Fisher, which holds a $47.9 million position; 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish include D. E. Shaw’s D E Shaw, Steve Cohen’s Point72 Asset Management and Noam Gottesman’s GLG Partners.
Judging by the fact that Magellan Health Inc (NASDAQ:MGLN) has faced a decline in interest from the smart money, it’s safe to say that there lies a certain “tier” of funds that decided to sell off their full holdings last quarter. Interestingly, Samuel Isaly’s OrbiMed Advisors dumped the biggest position of the 700 funds followed by Insider Monkey, comprising about $24.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $5.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Magellan Health Inc (NASDAQ:MGLN). We will take a look at Masonite International Corp (NYSE:DOOR), Advanced Drainage Systems, Inc. (NYSE:WMS), American Assets Trust, Inc (NYSE:AAT), and Capitol Federal Financial, Inc. (NASDAQ:CFFN). This group of stocks’ market values are closest to MGLN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DOOR | 21 | 338851 | 5 |
| WMS | 17 | 374714 | 1 |
| AAT | 11 | 130155 | -5 |
| CFFN | 12 | 198424 | 2 |
| Average | 15.25 | 260536 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $261 million. That figure was $248 million in MGLN’s case. Masonite International Corp (NYSE:DOOR) is the most popular stock in this table. On the other hand American Assets Trust, Inc (NYSE:AAT) is the least popular one with only 11 bullish hedge fund positions. Magellan Health Inc (NASDAQ:MGLN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard DOOR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
