Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
MGIC Investment Corporation (NYSE:MTG) was in 30 hedge funds’ portfolios at the end of the third quarter of 2018. MTG investors should pay attention to an increase in hedge fund interest in recent months. There were 25 hedge funds in our database with MTG holdings at the end of the previous quarter. Our calculations also showed that MTG isn’t among the 30 most popular stocks among hedge funds.
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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s review the recent hedge fund action regarding MGIC Investment Corporation (NYSE:MTG).
What have hedge funds been doing with MGIC Investment Corporation (NYSE:MTG)?
Heading into the fourth quarter of 2018, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the second quarter of 2018. By comparison, 32 hedge funds held shares or bullish call options in MTG heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in MGIC Investment Corporation (NYSE:MTG), which was worth $91.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $71 million worth of shares. Moreover, Millennium Management, GLG Partners, and Select Equity Group were also bullish on MGIC Investment Corporation (NYSE:MTG), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into MGIC Investment Corporation (NYSE:MTG) headfirst. Brigade Capital, managed by Don Morgan, assembled the biggest position in MGIC Investment Corporation (NYSE:MTG). Brigade Capital had $7.6 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also initiated a $7.5 million position during the quarter. The other funds with brand new MTG positions are David Rodriguez-Fraile’s BlueMar Capital Management, D. E. Shaw’s D E Shaw, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as MGIC Investment Corporation (NYSE:MTG) but similarly valued. These stocks are National Fuel Gas Company (NYSE:NFG), Whiting Petroleum Corporation (NYSE:WLL), AGCO Corporation (NYSE:AGCO), and HUYA Inc. (NYSE:HUYA). All of these stocks’ market caps are similar to MTG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NFG | 16 | 227303 | -1 |
| WLL | 39 | 906986 | 7 |
| AGCO | 21 | 231552 | 4 |
| HUYA | 17 | 159629 | 0 |
| Average | 23.25 | 381368 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $381 million. That figure was $430 million in MTG’s case. Whiting Petroleum Corporation (NYSE:WLL) is the most popular stock in this table. On the other hand National Fuel Gas Company (NYSE:NFG) is the least popular one with only 16 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard WLL might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
