The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Morningstar, Inc. (NASDAQ:MORN) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Is Morningstar, Inc. (NASDAQ:MORN) undervalued? Investors who are in the know were becoming hopeful. The number of bullish hedge fund bets advanced by 7 recently. Morningstar, Inc. (NASDAQ:MORN) was in 20 hedge funds' portfolios at the end of June. The all time high for this statistics is 25. Our calculations also showed that MORN isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 13 hedge funds in our database with MORN positions at the end of the first quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are dozens of metrics stock market investors can use to analyze publicly traded companies. Some of the less known metrics are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the best money managers can beat their index-focused peers by a healthy amount (see the details here).
Matthew Drapkin of Becker Drapkin Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let's analyze the latest hedge fund action regarding Morningstar, Inc. (NASDAQ:MORN).
What does smart money think about Morningstar, Inc. (NASDAQ:MORN)?
Heading into the third quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 54% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in MORN a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Morningstar, Inc. (NASDAQ:MORN) was held by Renaissance Technologies, which reported holding $107.1 million worth of stock at the end of September. It was followed by Royce & Associates with a $67.7 million position. Other investors bullish on the company included Select Equity Group, Arrowstreet Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Becker Drapkin Management allocated the biggest weight to Morningstar, Inc. (NASDAQ:MORN), around 2.17% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.75 percent of its 13F equity portfolio to MORN.
As one would reasonably expect, key hedge funds were leading the bulls' herd. Becker Drapkin Management, managed by Matthew Drapkin and Steven R. Becker, assembled the largest position in Morningstar, Inc. (NASDAQ:MORN). Becker Drapkin Management had $3.5 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also initiated a $1.9 million position during the quarter. The other funds with new positions in the stock are David Cohen and Harold Levy's Iridian Asset Management, Brandon Haley's Holocene Advisors, and Mika Toikka's AlphaCrest Capital Management.
Let's also examine hedge fund activity in other stocks similar to Morningstar, Inc. (NASDAQ:MORN). We will take a look at Aegon N.V. (NYSE:AEG), CF Industries Holdings, Inc. (NYSE:CF), AECOM (NYSE:ACM), Owens Corning (NYSE:OC), Vroom, Inc. (NASDAQ:VRM), ANGI Homeservices Inc (NASDAQ:ANGI), and Manhattan Associates, Inc. (NASDAQ:MANH). This group of stocks' market caps match MORN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AEG,4,16423,0 CF,37,547941,3 ACM,38,664429,-1 OC,37,576140,7 VRM,28,310338,28 ANGI,48,667972,21 MANH,15,287947,-5 Average,29.6,438741,7.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.6 hedge funds with bullish positions and the average amount invested in these stocks was $439 million. That figure was $293 million in MORN's case. ANGI Homeservices Inc (NASDAQ:ANGI) is the most popular stock in this table. On the other hand Aegon N.V. (NYSE:AEG) is the least popular one with only 4 bullish hedge fund positions. Morningstar, Inc. (NASDAQ:MORN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MORN is 34. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on MORN as the stock returned 14.2% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.