Were Hedge Funds Right About Selling Magellan Health Inc (MGLN)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first half of 2019. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Magellan Health Inc (NASDAQ:MGLN) to find out whether it was one of their high conviction long-term ideas.

Is Magellan Health Inc (NASDAQ:MGLN) a great investment today? The smart money is in a bearish mood. The number of bullish hedge fund positions were cut by 2 in recent months. Our calculations also showed that MGLN isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the fresh hedge fund action surrounding Magellan Health Inc (NASDAQ:MGLN).

What does smart money think about Magellan Health Inc (NASDAQ:MGLN)?

At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MGLN over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Jeff Smith

The largest stake in Magellan Health Inc (NASDAQ:MGLN) was held by Starboard Value LP, which reported holding $175.9 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $42.9 million position. Other investors bullish on the company included Engaged Capital, Point72 Asset Management, and Two Sigma Advisors.

Seeing as Magellan Health Inc (NASDAQ:MGLN) has witnessed bearish sentiment from the smart money, we can see that there were a few money managers that slashed their entire stakes in the second quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management dropped the largest stake of all the hedgies monitored by Insider Monkey, totaling close to $8.2 million in stock, and Glenn Russell Dubin’s Highbridge Capital Management was right behind this move, as the fund cut about $3 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the second quarter.

Let’s go over hedge fund activity in other stocks similar to Magellan Health Inc (NASDAQ:MGLN). These stocks are Tri Pointe Group Inc (NYSE:TPH), CNOOC Limited (NYSE:CEO), Shutterfly, Inc. (NASDAQ:SFLY), and Bandwidth Inc. (NASDAQ:BAND). This group of stocks’ market values resemble MGLN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TPH 17 175799 -1
CEO 9 257781 -4
SFLY 24 307901 -4
BAND 18 184105 -5
Average 17 231397 -3.5

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 $231 million. That figure was $380 million in MGLN’s case. Shutterfly, Inc. (NASDAQ:SFLY) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 9 bullish hedge fund positions. Magellan Health Inc (NASDAQ:MGLN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MGLN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MGLN were disappointed as the stock returned -16.3% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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