We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Micro Focus Intl PLC (NYSE:MFGP) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Micro Focus Intl PLC (NYSE:MFGP) a worthy investment right now? Money managers are taking a bullish view. The number of long hedge fund bets advanced by 3 recently. Our calculations also showed that MFGP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Steven Cohen of Point72 Asset Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the fresh hedge fund action regarding Micro Focus Intl PLC (NYSE:MFGP).
Hedge fund activity in Micro Focus Intl PLC (NYSE:MFGP)
At Q4’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the third quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in MFGP a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in Micro Focus Intl PLC (NYSE:MFGP), which was worth $21.3 million at the end of the third quarter. On the second spot was Hosking Partners which amassed $4.9 million worth of shares. Marshall Wace LLP, Citadel Investment Group, and Renaissance Technologies 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 Hosking Partners allocated the biggest weight to Micro Focus Intl PLC (NYSE:MFGP), around 0.12% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, designating 0.05 percent of its 13F equity portfolio to MFGP.
Now, key hedge funds were leading the bulls’ herd. Renaissance Technologies, founded by Jim Simons, established the most outsized position in Micro Focus Intl PLC (NYSE:MFGP). Renaissance Technologies had $1.6 million invested in the company at the end of the quarter. Michael A. Price and Amos Meron’s Empyrean Capital Partners also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Matthew Tewksbury’s Stevens Capital Management, and Steve Cohen’s Point72 Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Micro Focus Intl PLC (NYSE:MFGP) but similarly valued. We will take a look at Assured Guaranty Ltd. (NYSE:AGO), W.R. Grace & Co. (NYSE:GRA), Littelfuse, Inc. (NASDAQ:LFUS), and Beyond Meat, Inc. (NASDAQ:BYND). All of these stocks’ market caps are closest to MFGP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGO | 33 | 586688 | -5 |
| GRA | 46 | 1719576 | 3 |
| LFUS | 21 | 300976 | 3 |
| BYND | 19 | 69052 | 2 |
| Average | 29.75 | 669073 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $669 million. That figure was $36 million in MFGP’s case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand Beyond Meat, Inc. (NASDAQ:BYND) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Micro Focus Intl PLC (NYSE:MFGP) is even less popular than BYND. Hedge funds dodged a bullet by taking a bearish stance towards MFGP. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately MFGP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MFGP investors were disappointed as the stock returned -66.8% during the same time period 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 most of these stocks already outperformed the market so far in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
