After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of June 28. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Morningstar, Inc. (NASDAQ:MORN).
Is Morningstar, Inc. (NASDAQ:MORN) a good investment right now? Money managers are selling. The number of long hedge fund bets fell by 1 in recent months. Our calculations also showed that MORN isn't among the 30 most popular stocks among hedge funds (view the video below). MORN was in 20 hedge funds' portfolios at the end of June. There were 21 hedge funds in our database with MORN positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to go over the latest hedge fund action regarding Morningstar, Inc. (NASDAQ:MORN).
Hedge fund activity in Morningstar, Inc. (NASDAQ:MORN)
At Q2's end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the first quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in MORN a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the largest position in Morningstar, Inc. (NASDAQ:MORN). Renaissance Technologies has a $93.1 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Royce & Associates, led by Chuck Royce, holding a $76.1 million position; 0.7% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions comprise Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Robert Joseph Caruso's Select Equity Group and Cliff Asness's AQR Capital Management.
Since Morningstar, Inc. (NASDAQ:MORN) has experienced declining sentiment from hedge fund managers, logic holds that there were a few money managers that decided to sell off their positions entirely last quarter. At the top of the heap, Michael Platt and William Reeves's BlueCrest Capital Mgmt. sold off the biggest stake of the 750 funds tracked by Insider Monkey, totaling an estimated $0.6 million in stock, and Matthew Tewksbury's Stevens Capital Management was right behind this move, as the fund sold off about $0.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Morningstar, Inc. (NASDAQ:MORN). We will take a look at Mellanox Technologies, Ltd. (NASDAQ:MLNX), Genesee & Wyoming Inc (NYSE:GWR), Watsco Inc (NYSE:WSO), and Haemonetics Corporation (NYSE:HAE). 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 MLNX,39,1425612,-2 GWR,26,595964,4 WSO,22,171755,4 HAE,23,762479,-1 Average,27.5,738953,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $739 million. That figure was $266 million in MORN's case. Mellanox Technologies, Ltd. (NASDAQ:MLNX) is the most popular stock in this table. On the other hand Watsco Inc (NYSE:WSO) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Morningstar, Inc. (NASDAQ:MORN) is even less popular than WSO. Hedge funds dodged a bullet by taking a bearish stance towards MORN. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MORN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MORN investors were disappointed as the stock returned 1.2% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.