"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Mastercard Incorporated (NYSE:MA) and see how it was affected.
Mastercard Incorporated (NYSE:MA) shareholders have witnessed a slight decrease in support from the world's most elite money managers lately. MA was in 94 hedge funds' portfolios at the end of March. There were 96 hedge funds in our database with MA positions at the end of the previous quarter. Overall hedge fund sentiment towards the stock at the end of March is still very close to its all time high that was reached at the end of 2018. Mastercard is currently the 14th most popular stock among hedge funds (see the list of 30 most popular stocks among hedge funds).
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's analyze the new hedge fund action encompassing Mastercard Incorporated (NYSE:MA).
How are hedge funds trading Mastercard Incorporated (NYSE:MA)?
At Q1's end, a total of 94 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards MA over the last 15 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Gardner Russo & Gardner held the most valuable stake in Mastercard Incorporated (NYSE:MA), which was worth $1751 million at the end of the first quarter. On the second spot was Akre Capital Management which amassed $1254.5 million worth of shares. Moreover, Berkshire Hathaway, Arrowstreet Capital, and Lone Pine Capital were also bullish on Mastercard Incorporated (NYSE:MA), allocating a large percentage of their portfolios to this stock.
Because Mastercard Incorporated (NYSE:MA) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of fund managers that decided to sell off their full holdings heading into Q3. Intriguingly, Richard Chilton's Chilton Investment Company cut the largest position of all the hedgies watched by Insider Monkey, totaling about $107.1 million in stock. James Crichton's fund, Hitchwood Capital Management, also dropped its stock, about $33 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks similar to Mastercard Incorporated (NYSE:MA). We will take a look at Intel Corporation (NASDAQ:INTC), Cisco Systems, Inc. (NASDAQ:CSCO), UnitedHealth Group Inc. (NYSE:UNH), and Pfizer Inc. (NYSE:PFE). This group of stocks' market valuations are similar to MA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INTC,62,4307809,-3 CSCO,45,3154180,-10 UNH,72,6223666,-10 PFE,53,5290465,-6 Average,58,4744030,-7.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 58 hedge funds with bullish positions and the average amount invested in these stocks was $4744 million. That figure was $11561 million in MA's case. UnitedHealth Group Inc. (NYSE:UNH) is the most popular stock in this table. On the other hand Cisco Systems, Inc. (NASDAQ:CSCO) is the least popular one with only 45 bullish hedge fund positions. Compared to these stocks Mastercard Incorporated (NYSE:MA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on MA as the stock returned 8.1% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.