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Were Hedge Funds Right About Buying MGIC Investment Corporation (MTG)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding MGIC Investment Corporation (NYSE:MTG) and determine whether hedge funds had an edge regarding this stock.

MGIC Investment Corporation (NYSE:MTG) has experienced an increase in enthusiasm from smart money in recent months. 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the fresh hedge fund action regarding MGIC Investment Corporation (NYSE:MTG).

Hedge fund activity in MGIC Investment Corporation (NYSE:MTG)

At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in 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. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

More specifically, Point72 Asset Management was the largest shareholder of MGIC Investment Corporation (NYSE:MTG), with a stake worth $83.9 million reported as of the end of September. Trailing Point72 Asset Management was AQR Capital Management, which amassed a stake valued at $37.4 million. 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, setting aside 5.05 percent of its 13F equity portfolio to MTG.

As one would reasonably expect, key money managers were breaking ground themselves. 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 initiated a $3.2 million position during the quarter. The other funds with brand new MTG positions are James Thomas Berylson’s Berylson Capital Partners, Greg Eisner’s Engineers Gate Manager, and Lee Ainslie’s Maverick Capital.

Let’s go over 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on MTG as the stock returned 30% in Q2 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.