U.S. Markets closed

Hedge Fund Consensus Stocks vs. Marsh & McLennan Companies, Inc. (MMC) In 2019

Debasis Saha

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Marsh & McLennan Companies, Inc. (NYSE:MMC).

Is Marsh & McLennan Companies, Inc. (NYSE:MMC) a healthy stock for your portfolio? The best stock pickers are turning less bullish. The number of bullish hedge fund positions retreated by 3 recently. Our calculations also showed that MMC 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).

In the 21st century investor’s toolkit there are plenty of indicators stock market investors put to use to appraise publicly traded companies. Two of the less utilized indicators are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the top money managers can beat the broader indices by a very impressive amount (see the details here).

[caption id="attachment_758429" align="alignnone" width="600"] Ric Dillon of Diamond Hill Capital[/caption]

Ric Dillon Diamond Hill 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 look at the latest hedge fund action surrounding Marsh & McLennan Companies, Inc. (NYSE:MMC).

How have hedgies been trading Marsh & McLennan Companies, Inc. (NYSE:MMC)?

At Q3's end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MMC over the last 17 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.

Is MMC A Good Stock To Buy?

Among these funds, Polar Capital held the most valuable stake in Marsh & McLennan Companies, Inc. (NYSE:MMC), which was worth $190.4 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $124 million worth of shares. Markel Gayner Asset Management, Adage Capital Management, and AQR Capital 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 Bishop Rock Capital allocated the biggest weight to Marsh & McLennan Companies, Inc. (NYSE:MMC), around 4.58% of its 13F portfolio. Polar Capital is also relatively very bullish on the stock, earmarking 1.71 percent of its 13F equity portfolio to MMC.

Due to the fact that Marsh & McLennan Companies, Inc. (NYSE:MMC) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedge funds who sold off their positions entirely heading into Q4. At the top of the heap, Renaissance Technologies dropped the largest stake of the "upper crust" of funds monitored by Insider Monkey, valued at close to $41.2 million in stock, and John Brandmeyer's Cognios Capital was right behind this move, as the fund cut about $2.1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds heading into Q4.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Marsh & McLennan Companies, Inc. (NYSE:MMC) but similarly valued. These stocks are Illinois Tool Works Inc. (NYSE:ITW), Walgreens Boots Alliance Inc (NASDAQ:WBA), Suncor Energy Inc. (NYSE:SU), and America Movil SAB de CV (NYSE:AMX). This group of stocks' market caps match MMC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ITW,28,335340,0 WBA,34,831418,-7 SU,37,1416790,5 AMX,9,188555,0 Average,27,693026,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $693 million. That figure was $580 million in MMC's case. Suncor Energy Inc. (NYSE:SU) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) is the least popular one with only 9 bullish hedge fund positions. Marsh & McLennan Companies, Inc. (NYSE:MMC) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on MMC as the stock returned 42.3% in 2019 and outclassed the market by an even larger margin. 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.

Related Content