Hedge Funds Don’t Like Magnolia Oil & Gas Corporation (MGY) At All

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Magnolia Oil & Gas Corporation (NYSE:MGY) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in Magnolia Oil & Gas Corporation (NYSE:MGY) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MGY isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as First Midwest Bancorp Inc (NASDAQ:FMBI), Arconic Corporation (NYSE:ARNC), and Inter Parfums, Inc. (NASDAQ:IPAR) to gather more data points. Our calculations also showed that MGY isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Leon Cooperman of Omega Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox.Keeping this in mind let’s go over the key hedge fund action regarding Magnolia Oil & Gas Corporation (NYSE:MGY).

Hedge fund activity in Magnolia Oil & Gas Corporation (NYSE:MGY)

Heading into the third quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MGY over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Encompass Capital Advisors held the most valuable stake in Magnolia Oil & Gas Corporation (NYSE:MGY), which was worth $29.6 million at the end of the third quarter. On the second spot was Omega Advisors which amassed $15.1 million worth of shares. Arrowstreet Capital, D E Shaw, and SIR Capital Management 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 Encompass Capital Advisors allocated the biggest weight to Magnolia Oil & Gas Corporation (NYSE:MGY), around 3.95% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, earmarking 1.73 percent of its 13F equity portfolio to MGY.

Since Magnolia Oil & Gas Corporation (NYSE:MGY) has witnessed a decline in interest from hedge fund managers, we can see that there exists a select few money managers that slashed their positions entirely by the end of the second quarter. At the top of the heap, Chuck Royce’s Royce & Associates dumped the largest stake of the 750 funds watched by Insider Monkey, totaling close to $0.5 million in stock. Renaissance Technologies, also dropped its stock, about $0.4 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Magnolia Oil & Gas Corporation (NYSE:MGY). We will take a look at First Midwest Bancorp Inc (NASDAQ:FMBI), Arconic Corporation (NYSE:ARNC), Inter Parfums, Inc. (NASDAQ:IPAR), Horace Mann Educators Corporation (NYSE:HMN), Black Diamond Therapeutics, Inc. (NASDAQ:BDTX), Mueller Industries, Inc. (NYSE:MLI), and Apollo Commercial Real Est. Finance Inc (NYSE:ARI). All of these stocks’ market caps resemble MGY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FMBI 11 39364 0
ARNC 16 478899 -9
IPAR 15 62131 2
HMN 6 15420 -5
BDTX 17 276484 4
MLI 18 174802 1
ARI 10 37315 -7
Average 13.3 154916 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.3 hedge funds with bullish positions and the average amount invested in these stocks was $155 million. That figure was $86 million in MGY’s case. Mueller Industries, Inc. (NYSE:MLI) is the most popular stock in this table. On the other hand Horace Mann Educators Corporation (NYSE:HMN) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Magnolia Oil & Gas Corporation (NYSE:MGY) is more popular among hedge funds. Our overall hedge fund sentiment score for MGY is 21.2. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately MGY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MGY were disappointed as the stock returned -14.7% during the third 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.