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 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2018) generated a return of 15.1% during the same 12-month period, with 53% 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 Magna International Inc. (NYSE:MGA).
At the moment there are numerous methods shareholders have at their disposal to grade their holdings. A couple of the most under-the-radar methods are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the elite hedge fund managers can trounce the S&P 500 by a significant amount (see the details here).
Let’s take a peek at the key hedge fund action encompassing Magna International Inc. (NYSE:MGA).
How are hedge funds trading Magna International Inc. (NYSE:MGA)?
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in MGA heading into this year. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Magna International Inc. (NYSE:MGA). AQR Capital Management has a $235.5 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is East Side Capital (RR Partners), managed by Steven Richman, which holds a $55.4 million position; 5.5% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism consist of Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw.
Because Magna International Inc. (NYSE:MGA) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there were a few money managers that elected to cut their full holdings last quarter. It’s worth mentioning that Michael Messner’s Seminole Capital (Investment Mgmt) cut the biggest position of the 700 funds monitored by Insider Monkey, totaling close to $18.6 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $4.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 4 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Magna International Inc. (NYSE:MGA) but similarly valued. We will take a look at Credicorp Ltd. (NYSE:BAP), Textron Inc. (NYSE:TXT), SK Telecom Co., Ltd. (NYSE:SKM), and Laboratory Corp. of America Holdings (NYSE:LH). This group of stocks’ market values match MGA’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $685 million. That figure was $414 million in MGA’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 5 bullish hedge fund positions. Magna International Inc. (NYSE:MGA) 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. In this regard LH might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.