We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article, we look at what those funds think of MGIC Investment Corporation (NYSE:MTG) based on that data.
Is MGIC Investment Corporation (NYSE:MTG) a buy right now? Hedge funds are in a pessimistic mood. The number of bullish hedge fund bets went down by 4 in recent months. Our calculations also showed that MTG isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 41 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.
[caption id="attachment_26029" align="aligncenter" width="399"] Steven Cohen of Point72 Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's view the fresh hedge fund action encompassing MGIC Investment Corporation (NYSE:MTG).
What does smart money think about MGIC Investment Corporation (NYSE:MTG)?
Heading into the first quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the third quarter of 2019. By comparison, 35 hedge funds held shares or bullish call options in MTG a year ago. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of MGIC Investment Corporation (NYSE:MTG), with a stake worth $118.5 million reported as of the end of September. Trailing AQR Capital Management was GLG Partners, which amassed a stake valued at $72.1 million. Point72 Asset Management, Millennium Management, and Renaissance Technologies 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 1.9% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, designating 1.86 percent of its 13F equity portfolio to MTG.
Since MGIC Investment Corporation (NYSE:MTG) has experienced falling interest from hedge fund managers, it's safe to say that there is a sect of fund managers that decided to sell off their positions entirely last quarter. Interestingly, Mike Vranos's Ellington cut the biggest investment of the 750 funds watched by Insider Monkey, valued at an estimated $9.9 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also dumped its stock, about $4.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let's check out hedge fund activity in other stocks similar to MGIC Investment Corporation (NYSE:MTG). We will take a look at ONE Gas Inc (NYSE:OGS), Helmerich & Payne, Inc. (NYSE:HP), Webster Financial Corporation (NYSE:WBS), and Spirit Realty Capital Inc (NYSE:SRC). This group of stocks' market caps are closest to MTG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OGS,16,66793,-4 HP,33,633780,4 WBS,24,472727,-1 SRC,26,236430,5 Average,24.75,352433,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $352 million. That figure was $604 million in MTG's case. Helmerich & Payne, Inc. (NYSE:HP) is the most popular stock in this table. On the other hand ONE Gas Inc (NYSE:OGS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks MGIC Investment Corporation (NYSE:MTG) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately MTG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MTG were disappointed as the stock returned -53.5% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.