Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about MGIC Investment Corporation (NYSE:MTG).
MGIC Investment Corporation (NYSE:MTG) has experienced a decrease in hedge fund sentiment of late. MGIC Investment Corporation (NYSE:MTG) was in 27 hedge funds’ portfolios at the end of June. The all time high for this statistic is 47. Our calculations also showed that MTG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Howard Marks of Oaktree Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to take a look at the new hedge fund action encompassing MGIC Investment Corporation (NYSE:MTG).
Do Hedge Funds Think MTG Is A Good Stock To Buy Now?
At Q2’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in MTG over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, King Street Capital was the largest shareholder of MGIC Investment Corporation (NYSE:MTG), with a stake worth $44.7 million reported as of the end of June. Trailing King Street Capital was Redwood Capital Management, which amassed a stake valued at $44 million. Oaktree Capital Management, Rubric Capital Management, and Marshall Wace LLP 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 King Street Capital allocated the biggest weight to MGIC Investment Corporation (NYSE:MTG), around 3.67% of its 13F portfolio. Redwood Capital Management is also relatively very bullish on the stock, dishing out 2.87 percent of its 13F equity portfolio to MTG.
Judging by the fact that MGIC Investment Corporation (NYSE:MTG) has experienced bearish sentiment from hedge fund managers, we can see that there is a sect of funds who sold off their entire stakes in the second quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, comprising an estimated $6.6 million in stock. Mike Vranos’s fund, Ellington, also cut its stock, about $5.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds in the second quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as MGIC Investment Corporation (NYSE:MTG) but similarly valued. We will take a look at Trupanion Inc (NYSE:TRUP), Vicor Corp (NASDAQ:VICR), Sendas Distribuidora S.A. (NYSE:ASAI), UFP Industries, Inc. (NASDAQ:UFPI), AMN Healthcare Services Inc (NYSE:AMN), Silgan Holdings Inc. (NASDAQ:SLGN), and W.R. Grace & Co. (NYSE:GRA). This group of stocks’ market values resemble MTG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRUP | 14 | 294926 | -3 |
| VICR | 13 | 123682 | -7 |
| ASAI | 7 | 14608 | 1 |
| UFPI | 13 | 129142 | -3 |
| AMN | 24 | 145013 | 5 |
| SLGN | 13 | 236757 | -4 |
| GRA | 34 | 1664650 | -9 |
| Average | 16.9 | 372683 | -2.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.9 hedge funds with bullish positions and the average amount invested in these stocks was $373 million. That figure was $265 million in MTG’s case. W.R. Grace & Co. (NYSE:GRA) is the most popular stock in this table. On the other hand Sendas Distribuidora S.A. (NYSE:ASAI) is the least popular one with only 7 bullish hedge fund positions. MGIC Investment Corporation (NYSE:MTG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MTG is 58.3. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on MTG as the stock returned 21% since the end of Q2 (through 10/15) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Mgic Investment Corp (NYSE:MTG)
Follow Mgic Investment Corp (NYSE:MTG)
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Disclosure: None. This article was originally published at Insider Monkey.
