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Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Mercury General Corporation (NYSE:MCY).
Hedge fund interest in Mercury General Corporation (NYSE:MCY) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare MCY to other stocks including Euronav NV (NYSE:EURN), Mimecast Limited (NASDAQ:MIME), and Bill.com Holdings, Inc. (NYSE:BILL) to get a better sense of its popularity.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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Israel Englander of Millennium 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 we're going to view the fresh hedge fund action regarding Mercury General Corporation (NYSE:MCY).
What does smart money think about Mercury General Corporation (NYSE:MCY)?
Heading into the first quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in MCY over the last 18 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Mercury General Corporation (NYSE:MCY) was held by Renaissance Technologies, which reported holding $104.6 million worth of stock at the end of September. It was followed by AQR Capital Management with a $32.8 million position. Other investors bullish on the company included Prospector Partners, Millennium Management, and GLG Partners. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to Mercury General Corporation (NYSE:MCY), around 1.71% of its 13F portfolio. CSat Investment Advisory is also relatively very bullish on the stock, dishing out 0.15 percent of its 13F equity portfolio to MCY.
Seeing as Mercury General Corporation (NYSE:MCY) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few fund managers that slashed their full holdings in the third quarter. It's worth mentioning that Minhua Zhang's Weld Capital Management dropped the largest stake of the 750 funds watched by Insider Monkey, totaling about $0.9 million in stock, and Paul Tudor Jones's Tudor Investment Corp was right behind this move, as the fund said goodbye to about $0.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Mercury General Corporation (NYSE:MCY) but similarly valued. These stocks are Euronav NV (NYSE:EURN), Mimecast Limited (NASDAQ:MIME), Bill.com Holdings, Inc. (NYSE:BILL), and Summit Materials Inc (NYSE:SUM). All of these stocks' market caps are similar to MCY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EURN,28,232243,10 MIME,31,733997,-8 BILL,32,310930,32 SUM,35,454382,8 Average,31.5,432888,10.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $433 million. That figure was $197 million in MCY's case. Summit Materials Inc (NYSE:SUM) is the most popular stock in this table. On the other hand Euronav NV (NYSE:EURN) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Mercury General Corporation (NYSE:MCY) is even less popular than EURN. 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 but managed to beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on MCY, though not to the same extent, as the stock returned -22.4% during the same time period and outperformed the market as well.
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.