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How Did MSCI Inc (MSCI) Perform In Comparison to Hedge Fund Favorites in 2019?

Reymerlyn Martin

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.3% in 2019 and outperformed the broader market benchmark by 10.1 percentage points. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is MSCI Inc (NYSE:MSCI) going to take off soon? Money managers are getting more bullish. The number of bullish hedge fund positions advanced by 1 lately. Our calculations also showed that MSCI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). MSCI was in 37 hedge funds' portfolios at the end of the third quarter of 2019. There were 36 hedge funds in our database with MSCI holdings at the end of the previous quarter.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_746830" align="aligncenter" width="1613"] Matthew Hulsizer of PEAK6 Capital[/caption]

Matthew Hulsizer PEAK6 Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we're going to take a gander at the latest hedge fund action regarding MSCI Inc (NYSE:MSCI).

What have hedge funds been doing with MSCI Inc (NYSE:MSCI)?

At Q3's end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the previous quarter. On the other hand, there were a total of 36 hedge funds with a bullish position in MSCI a year ago. 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, Renaissance Technologies held the most valuable stake in MSCI Inc (NYSE:MSCI), which was worth $226.8 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $68.1 million worth of shares. GLG Partners, Fisher Asset Management, and Kylin 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 10.62% of its 13F portfolio. Totem Point Management is also relatively very bullish on the stock, dishing out 2.93 percent of its 13F equity portfolio to MSCI.

Consequently, some big names have been driving this bullishness. Perella Weinberg Partners established the most valuable position in MSCI Inc (NYSE:MSCI). Perella Weinberg Partners had $2.5 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also made a $0.9 million investment in the stock during the quarter. The other funds with brand new MSCI positions are Matthew Hulsizer's PEAK6 Capital Management, Minhua Zhang's Weld Capital Management, and Donald Sussman's Paloma Partners.

Let's also examine hedge fund activity in other stocks similar to MSCI Inc (NYSE:MSCI). We will take a look at Hess Corporation (NYSE:HES), Copart, Inc. (NASDAQ:CPRT), IAC/InterActiveCorp (NASDAQ:IAC), and Arista Networks Inc (NYSE:ANET). This group of stocks' market valuations match MSCI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HES,36,921996,1 CPRT,36,580287,6 IAC,51,2111302,4 ANET,20,178704,-8 Average,35.75,948072,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $948 million. That figure was $644 million in MSCI's case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand Arista Networks Inc (NYSE:ANET) is the least popular one with only 20 bullish hedge fund positions. MSCI Inc (NYSE:MSCI) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on MSCI as the stock returned 77.2% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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