Did Hedge Funds Make The Right Call On MSCI Inc (MSCI) ?
We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards MSCI Inc (NYSE:MSCI) and determine whether hedge funds skillfully traded this stock.
MSCI Inc (NYSE:MSCI) has experienced a decrease in hedge fund sentiment of late. MSCI was in 29 hedge funds' portfolios at the end of the first quarter of 2020. There were 42 hedge funds in our database with MSCI holdings at the end of the previous quarter. Our calculations also showed that MSCI 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.
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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. 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. With all of this in mind we're going to take a glance at the recent hedge fund action encompassing MSCI Inc (NYSE:MSCI).
What have hedge funds been doing with MSCI Inc (NYSE:MSCI)?
Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MSCI over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in MSCI Inc (NYSE:MSCI), which was worth $135 million at the end of the third quarter. On the second spot was SCGE Management which amassed $118.5 million worth of shares. Fisher Asset Management, Two Sigma Advisors, and Markel Gayner Asset 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 Kylin Management allocated the biggest weight to MSCI Inc (NYSE:MSCI), around 9.18% of its 13F portfolio. Totem Point Management is also relatively very bullish on the stock, dishing out 6.34 percent of its 13F equity portfolio to MSCI.
Since MSCI Inc (NYSE:MSCI) has experienced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there was a specific group of hedgies that elected to cut their positions entirely heading into Q4. It's worth mentioning that Noam Gottesman's GLG Partners cut the biggest position of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $61 million in stock. Israel Englander's fund, Millennium Management, also said goodbye to its stock, about $36.6 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 13 funds heading into Q4.
Let's also examine hedge fund activity in other stocks similar to MSCI Inc (NYSE:MSCI). These stocks are Manulife Financial Corporation (NYSE:MFC), Marriott International Inc (NYSE:MAR), Mercadolibre Inc (NASDAQ:MELI), and Suncor Energy Inc. (NYSE:SU). This group of stocks' market valuations are similar to MSCI's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MFC,20,139150,1 MAR,47,1553974,10 MELI,60,2099088,8 SU,30,766498,-9 Average,39.25,1139678,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.25 hedge funds with bullish positions and the average amount invested in these stocks was $1140 million. That figure was $639 million in MSCI's case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 20 bullish hedge fund positions. MSCI Inc (NYSE:MSCI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately MSCI wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MSCI investors were disappointed as the stock returned 15.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
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