Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Mercury General Corporation (NYSE:MCY) based on that data.
Is Mercury General Corporation (NYSE:MCY) a bargain? Hedge funds are in an optimistic mood. The number of bullish hedge fund bets increased by 1 in recent months. Our calculations also showed that MCY isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
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 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the new hedge fund action encompassing Mercury General Corporation (NYSE:MCY).
How are hedge funds trading Mercury General Corporation (NYSE:MCY)?
Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in MCY a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Mercury General Corporation (NYSE:MCY), which was worth $96.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $30.3 million worth of shares. Millennium Management, Prospector Partners, and D E Shaw 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 Prospector Partners allocated the biggest weight to Mercury General Corporation (NYSE:MCY), around 1.97% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.15 percent of its 13F equity portfolio to MCY.
Now, key money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Mercury General Corporation (NYSE:MCY). Arrowstreet Capital had $5.3 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also made a $1.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Ira Unschuld’s Brant Point Investment Management and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Mercury General Corporation (NYSE:MCY). These stocks are Sabra Health Care REIT Inc (NASDAQ:SBRA), Itron, Inc. (NASDAQ:ITRI), Quaker Chemical Corp (NYSE:KWR), and Vivint Smart Home, Inc. (NYSE:VVNT). This group of stocks’ market caps are closest to MCY’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $130 million. That figure was $194 million in MCY’s case. Itron, Inc. (NASDAQ:ITRI) is the most popular stock in this table. On the other hand Quaker Chemical Corp (NYSE:KWR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Mercury General Corporation (NYSE:MCY) is more popular among hedge funds. 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. Unfortunately MCY wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MCY were disappointed as the stock returned 3.9% during the second quarter (through June 10th) 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.
Disclosure: None. This article was originally published at Insider Monkey.