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Hedge Funds Don’t See What All the Fuss is About With Mercury General Corporation (MCY)

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 8.7% through October 26. 40% of the S&P 500 constituents are down more than 10%. The average return of a randomly picked stock in the index is -9.5%. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 25 most popular S&P 500 stocks among hedge funds had an average loss of 8.8%. In this article, we will take a look at what hedge funds think about Mercury General Corporation (NYSE:MCY).

A lot of former Mercury General Corporation (NYSE:MCY) bulls sold out of the stock during Q2, as hedge fund ownership of the stock fell by 36%. Just 9 of the hedge funds tracked by Insider Monkey were long Mercury General on June 30, including Jim Simons’ Renaissance Technologies (980,900 shares). The insurance company has been paying dividends for 32 straight years, which landed it in the top 20 on our list of the 25 Best Dividend Stocks for Retirement.

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 flagship best performing hedge funds strategy returned 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

RENAISSANCE TECHNOLOGIES

Hedge fund activity in Mercury General Corporation (NYSE:MCY)

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a 36% drop from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in MCY in the middle of 2017. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

MCY_nov2018

The largest stake in Mercury General Corporation (NYSE:MCY) was held by Renaissance Technologies, which reported holding $44.7 million worth of stock as of the end of June. It was followed by Prospector Partners with an $8.9 million position. Other investors bullish on the company included Capital Returns Management, Royce & Associates, and Two Sigma Advisors.

Due to the fact that Mercury General Corporation (NYSE:MCY) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there were a few hedgies that slashed their full holdings in the second quarter. At the top of the heap, Michael Platt and William Reeves’ BlueCrest Capital Mgmt. said goodbye to the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling about $4.7 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $0.8 million worth. These moves are important to note, as total hedge fund interest fell by 5 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Mercury General Corporation (NYSE:MCY). These stocks are KBR, Inc. (NYSE:KBR), Liberty Expedia Holdings, Inc. (NASDAQ:LEXEA), and Emergent Biosolutions Inc (NYSE:EBS). This group of stocks’ market values are closest to MCY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KBR 21 345974 2
LEXEA 16 363156 -3
EBS 12 221076 -3

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $310 million. That figure was $81.23 million in MCY’s case. KBR, Inc. (NYSE:KBR) is the most popular stock in this table. On the other hand EBS is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks is even less popular than Mercury General Corporation (NYSE:MCY). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money doesn’t see any hidden value.

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

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