Hedge Funds Are Dumping MDU Resources Group Inc (MDU)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought MDU Resources Group Inc (NYSE:MDU) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

MDU Resources Group Inc (NYSE:MDU) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 30. MDU shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. There were 25 hedge funds in our database with MDU holdings at the end of March. Our calculations also showed that MDU isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Gavin Saitowitz of Prelude Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let’s view the latest hedge fund action encompassing MDU Resources Group Inc (NYSE:MDU).

What does smart money think about MDU Resources Group Inc (NYSE:MDU)?

Heading into the third quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in MDU over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of MDU Resources Group Inc (NYSE:MDU), with a stake worth $39.7 million reported as of the end of September. Trailing AQR Capital Management was Two Sigma Advisors, which amassed a stake valued at $32 million. GLG Partners, Renaissance Technologies, and D E Shaw 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 Ancora Advisors allocated the biggest weight to MDU Resources Group Inc (NYSE:MDU), around 0.51% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.2 percent of its 13F equity portfolio to MDU.

Since MDU Resources Group Inc (NYSE:MDU) has experienced a decline in interest from the smart money, we can see that there was a specific group of money managers that slashed their entire stakes heading into Q3. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the biggest stake of all the hedgies monitored by Insider Monkey, totaling about $12.2 million in stock. Mark Coe’s fund, Intrinsic Edge Capital, also said goodbye to its stock, about $8.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 4 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as MDU Resources Group Inc (NYSE:MDU) but similarly valued. We will take a look at MSA Safety Incorporated (NYSE:MSA), Alaska Air Group, Inc. (NYSE:ALK), Cousins Properties Incorporated (NYSE:CUZ), Agora, Inc. (NASDAQ:API), Legg Mason, Inc. (NYSE:LM), Ritchie Bros. Auctioneers Incorporated (NYSE:RBA), and Eaton Vance Corp (NYSE:EV). This group of stocks’ market valuations match MDU’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $307 million. That figure was $182 million in MDU’s case. Legg Mason, Inc. (NYSE:LM) is the most popular stock in this table. On the other hand Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) is the least popular one with only 17 bullish hedge fund positions. MDU Resources Group Inc (NYSE:MDU) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MDU is 37.4. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately MDU wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MDU investors were disappointed as the stock returned 2.3% in the third 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.

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