The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Micro Focus Intl PLC (NYSE:MFGP).
Micro Focus Intl PLC (NYSE:MFGP) has experienced a decrease in activity from the world's largest hedge funds in recent months. Our calculations also showed that MFGP 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 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 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.
[caption id="attachment_27480" align="aligncenter" width="392"] Israel Englander of Millennium Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Keeping this in mind we're going to take a glance at the key hedge fund action encompassing Micro Focus Intl PLC (NYSE:MFGP).
How are hedge funds trading Micro Focus Intl PLC (NYSE:MFGP)?
At Q1's end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. On the other hand, there were a total of 4 hedge funds with a bullish position in MFGP a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Micro Focus Intl PLC (NYSE:MFGP), with a stake worth $7.9 million reported as of the end of September. Trailing Arrowstreet Capital was Hosking Partners, which amassed a stake valued at $1.7 million. Renaissance Technologies, Two Sigma Advisors, and Millennium 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 Hosking Partners allocated the biggest weight to Micro Focus Intl PLC (NYSE:MFGP), around 0.06% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to MFGP.
Since Micro Focus Intl PLC (NYSE:MFGP) has witnessed declining sentiment from the smart money, it's easy to see that there exists a select few funds who sold off their entire stakes by the end of the first quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP dropped the largest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $3.7 million in stock. Michael A. Price and Amos Meron's fund, Empyrean Capital Partners, also cut its stock, about $0.5 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 2 funds by the end of the first quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Micro Focus Intl PLC (NYSE:MFGP) but similarly valued. These stocks are CIT Group Inc. (NYSE:CIT), YETI Holdings, Inc. (NYSE:YETI), Artisan Partners Asset Management Inc (NYSE:APAM), and Fate Therapeutics Inc (NASDAQ:FATE). This group of stocks' market caps are closest to MFGP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIT,37,315095,2 YETI,20,57055,3 APAM,20,172187,4 FATE,24,582153,1 Average,25.25,281623,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $282 million. That figure was $14 million in MFGP's case. CIT Group Inc. (NYSE:CIT) is the most popular stock in this table. On the other hand YETI Holdings, Inc. (NYSE:YETI) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Micro Focus Intl PLC (NYSE:MFGP) is even less popular than YETI. Hedge funds clearly dropped the ball on MFGP as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 gained 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on MFGP as the stock returned 33.5% so far in the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.