It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% 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 isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Mercury General Corporation (NYSE:MCY).
Hedge fund interest in Mercury General Corporation (NYSE:MCY) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare MCY to other stocks including On Assignment, Inc. (NYSE:ASGN), Moog Inc (NYSE:MOG), and TreeHouse Foods Inc. (NYSE:THS) to get a better sense of its popularity.
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 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a peek at the latest hedge fund action regarding Mercury General Corporation (NYSE:MCY).
How are hedge funds trading Mercury General Corporation (NYSE:MCY)?
At Q4’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2018. By comparison, 14 hedge funds held shares or bullish call options in MCY a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Jim Simons’s Renaissance Technologies has the most valuable position in Mercury General Corporation (NYSE:MCY), worth close to $70 million, corresponding to 0.1% of its total 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $14.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism encompass Paul Marshall and Ian Wace’s Marshall Wace LLP, John D. Gillespie’s Prospector Partners and David Harding’s Winton Capital Management.
Judging by the fact that Mercury General Corporation (NYSE:MCY) has faced a decline in interest from hedge fund managers, logic holds that there were a few hedge funds that elected to cut their full holdings heading into Q3. It’s worth mentioning that Paul Tudor Jones’s Tudor Investment Corp dumped the biggest position of the “upper crust” of funds watched by Insider Monkey, worth close to $0.7 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund dropped about $0.1 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Mercury General Corporation (NYSE:MCY). These stocks are ASGN Incorporated (NYSE:ASGN), MOGU Inc. (NYSE:MOG), TreeHouse Foods Inc. (NYSE:THS), and CVB Financial Corp. (NASDAQ:CVBF). All of these stocks’ market caps are similar to MCY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ASGN | 21 | 123517 | 3 |
| MOG | 13 | 56841 | 0 |
| THS | 19 | 459576 | 1 |
| CVBF | 9 | 28191 | -2 |
| Average | 15.5 | 167031 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $153 million in MCY’s case. ASGN Incorporated (NYSE:ASGN) is the most popular stock in this table. On the other hand CVB Financial Corp. (NASDAQ:CVBF) is the least popular one with only 9 bullish hedge fund positions. Mercury General Corporation (NYSE:MCY) 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. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately MCY wasn’t nearly as popular as these 15 stock and hedge funds that were betting on MCY were disappointed as the stock returned -1.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
