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MGIC Investment Corporation (MTG): Hedge Funds Are Snapping Up

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards MGIC Investment Corporation (NYSE:MTG).

MGIC Investment Corporation (NYSE:MTG) was in 41 hedge funds’ portfolios at the end of the first quarter of 2020. MTG has experienced an increase in activity from the world’s largest hedge funds of late. There were 37 hedge funds in our database with MTG positions at the end of the previous quarter. Our calculations also showed that MTG 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 44 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.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Howard Marks of Oaktree Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. 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. With all of this in mind we’re going to check out the key hedge fund action encompassing MGIC Investment Corporation (NYSE:MTG).

How are hedge funds trading MGIC Investment Corporation (NYSE:MTG)?

Heading into the second quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in MTG a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Point72 Asset Management held the most valuable stake in MGIC Investment Corporation (NYSE:MTG), which was worth $83.9 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $37.4 million worth of shares. GLG Partners, Renaissance Technologies, and Oaktree 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 Almitas Capital allocated the biggest weight to MGIC Investment Corporation (NYSE:MTG), around 5.44% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, designating 5.05 percent of its 13F equity portfolio to MTG.

As one would reasonably expect, some big names have been driving this bullishness. Hudson Bay Capital Management, managed by Sander Gerber, established the largest position in MGIC Investment Corporation (NYSE:MTG). Hudson Bay Capital Management had $3.8 million invested in the company at the end of the quarter. Lawrence Kam’s Sonic Capital also made a $3.2 million investment in the stock during the quarter. The following funds were also among the new MTG investors: James Thomas Berylson’s Berylson Capital Partners, Greg Eisner’s Engineers Gate Manager, and Lee Ainslie’s Maverick Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as MGIC Investment Corporation (NYSE:MTG) but similarly valued. We will take a look at Bank OZK (NASDAQ:OZK), First Hawaiian, Inc. (NASDAQ:FHB), Gates Industrial Corporation plc (NYSE:GTES), and CenterState Bank Corporation (NASDAQ:CSFL). 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
OZK 25 146154 0
FHB 21 136967 3
GTES 8 23102 -1
CSFL 14 48481 -2
Average 17 88676 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $269 million in MTG’s case. Bank OZK (NASDAQ:OZK) is the most popular stock in this table. On the other hand Gates Industrial Corporation plc (NYSE:GTES) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks MGIC Investment Corporation (NYSE:MTG) 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on MTG as the stock returned 30.3% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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