Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.
MGE Energy, Inc. (NASDAQ:MGEE) was in 13 hedge funds' portfolios at the end of the second quarter of 2019. MGEE has seen an increase in support from the world's most elite money managers of late. There were 9 hedge funds in our database with MGEE positions at the end of the previous quarter. Our calculations also showed that MGEE isn't among the 30 most popular stocks among hedge funds (view the video below). 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 gander at the fresh hedge fund action surrounding MGE Energy, Inc. (NASDAQ:MGEE).
How are hedge funds trading MGE Energy, Inc. (NASDAQ:MGEE)?
At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 44% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in MGEE a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of MGE Energy, Inc. (NASDAQ:MGEE), with a stake worth $33.3 million reported as of the end of March. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $13.8 million. Citadel Investment Group, PDT Partners, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, some big names have been driving this bullishness. Millennium Management, managed by Israel Englander, initiated the biggest position in MGE Energy, Inc. (NASDAQ:MGEE). Millennium Management had $13.8 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also made a $0.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Hulsizer's PEAK6 Capital Management, Minhua Zhang's Weld Capital Management, and John Overdeck and David Siegel's Two Sigma Advisors.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as MGE Energy, Inc. (NASDAQ:MGEE) but similarly valued. These stocks are Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA), Beacon Roofing Supply, Inc. (NASDAQ:BECN), United States Steel Corporation (NYSE:X), and Halozyme Therapeutics, Inc. (NASDAQ:HALO). All of these stocks' market caps match MGEE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IBA,3,39180,0 BECN,16,400438,-2 X,19,87590,-5 HALO,19,203619,1 Average,14.25,182707,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $183 million. That figure was $54 million in MGEE's case. United States Steel Corporation (NYSE:X) is the most popular stock in this table. On the other hand Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) is the least popular one with only 3 bullish hedge fund positions. MGE Energy, Inc. (NASDAQ:MGEE) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on MGEE as the stock returned 9.8% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.