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Here’s What Hedge Funds Think About MDU Resources Group Inc (MDU)

Abigail Fisher

Is MDU Resources Group Inc (NYSE:MDU) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

MDU Resources Group Inc (NYSE:MDU) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 21 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare MDU to other stocks including Axis Capital Holdings Limited (NYSE:AXS), Sarepta Therapeutics Inc (NASDAQ:SRPT), and World Wrestling Entertainment, Inc. (NYSE:WWE) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the key hedge fund action surrounding MDU Resources Group Inc (NYSE:MDU).

What have hedge funds been doing with MDU Resources Group Inc (NYSE:MDU)?

At Q3's end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MDU over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in MDU Resources Group Inc (NYSE:MDU) was held by Adage Capital Management, which reported holding $84.6 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $80.1 million position. Other investors bullish on the company included Millennium Management, Renaissance Technologies, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to MDU Resources Group Inc (NYSE:MDU), around 6.83% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, dishing out 1.65 percent of its 13F equity portfolio to MDU.

Due to the fact that MDU Resources Group Inc (NYSE:MDU) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there was a specific group of hedgies who were dropping their full holdings in the third quarter. Interestingly, Benjamin A. Smith's Laurion Capital Management said goodbye to the biggest investment of the "upper crust" of funds watched by Insider Monkey, comprising close to $1.9 million in stock. Minhua Zhang's fund, Weld Capital Management, also sold off its stock, about $0.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as MDU Resources Group Inc (NYSE:MDU) but similarly valued. These stocks are Axis Capital Holdings Limited (NYSE:AXS), Sarepta Therapeutics Inc (NASDAQ:SRPT), World Wrestling Entertainment, Inc. (NYSE:WWE), and The Howard Hughes Corporation (NYSE:HHC). This group of stocks' market valuations match MDU's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AXS,28,893110,1 SRPT,33,801161,-15 WWE,34,1203910,-5 HHC,25,527177,-1 Average,30,856340,-5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $856 million. That figure was $379 million in MDU's case. World Wrestling Entertainment, Inc. (NYSE:WWE) is the most popular stock in this table. On the other hand The Howard Hughes Corporation (NYSE:HHC) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks MDU Resources Group Inc (NYSE:MDU) is even less popular than HHC. Hedge funds dodged a bullet by taking a bearish stance towards MDU. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MDU wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MDU investors were disappointed as the stock returned 3% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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