Was The Smart Money Right About MGIC Investment Corporation (MTG)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards MGIC Investment Corporation (NYSE:MTG).

MGIC Investment Corporation (NYSE:MTG) has experienced a decrease in hedge fund sentiment lately. MGIC Investment Corporation (NYSE:MTG) was in 40 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 47. There were 41 hedge funds in our database with MTG holdings at the end of March. Our calculations also showed that MTG 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In the eyes of most traders, hedge funds are assumed to be unimportant, outdated financial tools of years past. While there are more than 8000 funds with their doors open at present, We look at the top tier of this group, approximately 850 funds. These investment experts manage most of the hedge fund industry’s total capital, and by keeping track of their highest performing stock picks, Insider Monkey has come up with a number of investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .


Howard Marks of Oaktree Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. Now we’re going to go over the recent hedge fund action regarding MGIC Investment Corporation (NYSE:MTG).

What does smart money think about MGIC Investment Corporation (NYSE:MTG)?

At second quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MTG over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, GLG Partners, managed by Noam Gottesman, holds the most valuable position in MGIC Investment Corporation (NYSE:MTG). GLG Partners has a $34.4 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is Select Equity Group, managed by Robert Joseph Caruso, which holds a $27.3 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other peers with similar optimism include Howard Marks’s Oaktree Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Louis Bacon’s Moore Global Investments. In terms of the portfolio weights assigned to each position Almitas Capital allocated the biggest weight to MGIC Investment Corporation (NYSE:MTG), around 3.96% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, designating 3.06 percent of its 13F equity portfolio to MTG.

Seeing as MGIC Investment Corporation (NYSE:MTG) has experienced a decline in interest from hedge fund managers, it’s easy to see that there were a few funds who were dropping their entire stakes by the end of the second quarter. It’s worth mentioning that Sander Gerber’s Hudson Bay Capital Management said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, worth an estimated $3.8 million in stock, and Lawrence Kam’s Sonic Capital was right behind this move, as the fund dumped about $3.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as MGIC Investment Corporation (NYSE:MTG) but similarly valued. These stocks are NorthWestern Corporation (NASDAQ:NWE), Mantech International Corp (NASDAQ:MANT), White Mountains Insurance Group Ltd (NYSE:WTM), Avnet, Inc. (NASDAQ:AVT), Burning Rock Biotech Limited (NASDAQ:BNR), H&R Block, Inc. (NYSE:HRB), and Cushman & Wakefield plc (NYSE:CWK). All of these stocks’ market caps match MTG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NWE 22 96622 3
MANT 16 29262 -1
WTM 11 116150 -5
AVT 29 553892 5
BNR 18 240649 18
HRB 24 206807 5
CWK 17 101994 2
Average 19.6 192197 3.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.6 hedge funds with bullish positions and the average amount invested in these stocks was $192 million. That figure was $263 million in MTG’s case. Avnet, Inc. (NASDAQ:AVT) is the most popular stock in this table. On the other hand White Mountains Insurance Group Ltd (NYSE:WTM) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks MGIC Investment Corporation (NYSE:MTG) is more popular among hedge funds. Our overall hedge fund sentiment score for MTG is 79.5. 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 returned 23% in 2020 through October 30th but still managed to beat the market by 20.1 percentage points. Hedge funds were also right about betting on MTG as the stock returned 23.7% since the end of June (through 10/30) 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.