We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 MGP Ingredients Inc (NASDAQ:MGPI).
MGP Ingredients Inc (NASDAQ:MGPI) was in 10 hedge funds’ portfolios at the end of September. MGPI has experienced an increase in enthusiasm from smart money lately. There were 7 hedge funds in our database with MGPI holdings at the end of the previous quarter. Our calculations also showed that MGPI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the key hedge fund action surrounding MGP Ingredients Inc (NASDAQ:MGPI).
How are hedge funds trading MGP Ingredients Inc (NASDAQ:MGPI)?
At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MGPI over the last 17 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of MGP Ingredients Inc (NASDAQ:MGPI), with a stake worth $15 million reported as of the end of September. Trailing Millennium Management was Cardinal Capital, which amassed a stake valued at $11.8 million. Citadel Investment Group, D E Shaw, and Marshall Wace 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 Cardinal Capital allocated the biggest weight to MGP Ingredients Inc (NASDAQ:MGPI), around 0.39% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, dishing out 0.04 percent of its 13F equity portfolio to MGPI.
Now, key money managers were leading the bulls’ herd. D E Shaw, managed by David E. Shaw, created the most valuable position in MGP Ingredients Inc (NASDAQ:MGPI). D E Shaw had $5.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace also made a $5.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management and Paul Tudor Jones’s Tudor Investment Corp.
Let’s also examine hedge fund activity in other stocks similar to MGP Ingredients Inc (NASDAQ:MGPI). We will take a look at Trueblue Inc (NYSE:TBI), Interface, Inc. (NASDAQ:TILE), ShockWave Medical, Inc. (NASDAQ:SWAV), and Washington Trust Bancorp, Inc. (NASDAQ:WASH). This group of stocks’ market caps resemble MGPI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TBI | 14 | 73599 | -1 |
| TILE | 14 | 44528 | 2 |
| SWAV | 10 | 51360 | 3 |
| WASH | 8 | 29820 | 1 |
| Average | 11.5 | 49827 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $47 million in MGPI’s case. Trueblue Inc (NYSE:TBI) is the most popular stock in this table. On the other hand Washington Trust Bancorp, Inc. (NASDAQ:WASH) is the least popular one with only 8 bullish hedge fund positions. MGP Ingredients Inc (NASDAQ:MGPI) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MGPI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MGPI investors were disappointed as the stock returned -8% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
