Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in MGIC Investment Corporation (NYSE:MTG)? The smart money sentiment can provide an answer to this question.
Is MTG a good stock to buy now? The smart money was getting more optimistic. The number of long hedge fund positions rose by 1 in recent months. MGIC Investment Corporation (NYSE:MTG) was in 41 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 47. Our calculations also showed that MTG isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
If you’d ask most traders, hedge funds are perceived as worthless, old investment tools of years past. While there are over 8000 funds in operation today, We look at the aristocrats of this group, approximately 850 funds. These hedge fund managers have their hands on most of all hedge funds’ total capital, and by monitoring their inimitable investments, Insider Monkey has spotted a number of investment strategies that have historically outpaced the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now we’re going to go over the recent hedge fund action encompassing MGIC Investment Corporation (NYSE:MTG).
Do Hedge Funds Think MTG Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the second quarter of 2020. On the other hand, there were a total of 41 hedge funds with a bullish position in MTG a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, GLG Partners was the largest shareholder of MGIC Investment Corporation (NYSE:MTG), with a stake worth $37.1 million reported as of the end of September. Trailing GLG Partners was Select Equity Group, which amassed a stake valued at $30.8 million. Redwood Capital Management, Oaktree Capital Management, and King Street Capital 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 Almitas Capital allocated the biggest weight to MGIC Investment Corporation (NYSE:MTG), around 3.29% of its 13F portfolio. Beach Point Capital Management is also relatively very bullish on the stock, designating 2.85 percent of its 13F equity portfolio to MTG.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Redwood Capital Management, managed by Jonathan Kolatch, initiated the most valuable position in MGIC Investment Corporation (NYSE:MTG). Redwood Capital Management had $28.7 million invested in the company at the end of the quarter. Brian J. Higgins’s King Street Capital also made a $24.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Doug Silverman and Alexander Klabin’s Senator Investment Group, Frank Brosens’s Taconic Capital, and George McCabe’s Portolan Capital Management.
Let’s go over hedge fund activity in other stocks similar to MGIC Investment Corporation (NYSE:MTG). We will take a look at Qurate Retail, Inc. (NASDAQ:QRTEA), M.D.C. Holdings, Inc. (NYSE:MDC), Braskem SA (NYSE:BAK), Mimecast Limited (NASDAQ:MIME), Nektar Therapeutics (NASDAQ:NKTR), Open Lending Corporation (NASDAQ:LPRO), and Dorman Products Inc. (NASDAQ:DORM). This group of stocks’ market caps match MTG’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 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $314 million in MTG’s case. Qurate Retail, Inc. (NASDAQ:QRTEA) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 8 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. Our overall hedge fund sentiment score for MTG is 82.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on MTG as the stock returned 36.8% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.