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How Mastercard and Other Hedge Fund Favorites Performed in Q2

Insider Monkey Staff

Insider Monkey tracks hedge funds, billionaires, and prominent value investors for a very simple reason: their consensus picks generally outperform the market. We aren’t the only research shop broadcasting this fact using a bullhorn. Here is what strategist Ben Snider said in Goldman Sachs’ periodic hedge fund report:

“Despite the strong track record of popular hedge fund stocks, investors often view high ownership as a negative trait when evaluating stock prospects. Clients often ask us to include hedge fund ownership data in stock screens, expressing a preference for buying ‘under-owned’ stocks.”

“In fact, during the past decade hedge fund popularity has been a more useful criterion for selecting stocks than valuations…. The signals from hedge fund popularity and valuation have been particularly useful in combination, especially for investors with slightly longer investment horizons. During the past decade, popular stocks have generally outperformed unpopular stocks across both 3- and 12-month investment horizons” Snider concluded.

It may sound like I am tooting my own horn, but Insider Monkey’s quarterly newsletter is actually superior to Goldman’s report. That’s because we separated the hedge fund favorites into long and short buckets. Our long bucket of hedge fund favorites returned 34.1% in the first half of 2019, whereas our short bucket of hedge fund favorites gained 21.4% during the same period. Hedge funds’ favorite top 20 stocks, on the other hand, returned 24% so far in 2019. You could have beaten the S&P 500 Index funds by 5.7 percentage points by investing in hedge funds’ top 20 picks in 2019, whereas you could have outperformed the index funds by 15.8 percentage points if you invested in our top hedge fund picks. You can try out our newsletter free of charge for 14 days to see hedge funds’ latest best stock picks.

The #14 most popular stock among the 743 hedge funds tracked by Insider Monkey was Mastercard Incorporated (NYSE:MA). Mastercard was also the 13th most popular stock among hedge funds at the end of December (see the 30 most popular stocks among hedge funds).

We have to warn you against indiscriminately imitating hedge funds' all stock picks. Hedge funds' top 20 stock picks outperformed the S&P 500 Index funds by 5.7 percentage points this year, but hedge funds' top 500 stock picks had the same return as the S&P 500 Index this quarter. Investing in a hedge fund's 35th best idea doesn't give you the same return as investing in a hedge fund's best idea.

[caption id="attachment_315178" align="aligncenter" width="450"] Warren Buffett[/caption]

Warren Buffett

Let's check out the new hedge fund action regarding Mastercard Incorporated (NYSE:MA).

What have hedge funds been doing with Mastercard Incorporated (NYSE:MA)?

At the end of the first quarter, a total of 94 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from the fourth quarter of 2018. By comparison, 84 hedge funds held shares or bullish call options in MA a year ago. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

MA_may2019

More specifically, Gardner Russo & Gardner was the largest shareholder of Mastercard Incorporated (NYSE:MA), with a stake worth $1751 million reported as of the end of March. Trailing Gardner Russo & Gardner was Akre Capital Management, which amassed a stake valued at $1254.5 million. Berkshire Hathaway, Arrowstreet Capital, and Lone Pine Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Because Mastercard Incorporated (NYSE:MA) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few fund managers who sold off their entire stakes by the end of the third quarter. At the top of the heap, Richard Chilton's Chilton Investment Company sold off the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at close to $107.1 million in stock. James Crichton's fund, Hitchwood Capital Management, also cut its stock, about $33 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Mastercard Incorporated (NYSE:MA) but similarly valued. We will take a look at Intel Corporation (NASDAQ:INTC), Cisco Systems, Inc. (NASDAQ:CSCO), UnitedHealth Group Inc. (NYSE:UNH), and Pfizer Inc. (NYSE:PFE). All of these stocks' market caps are similar to MA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INTC,62,4307809,-3 CSCO,45,3154180,-10 UNH,72,6223666,-10 PFE,53,5290465,-6 Average,58,4744030,-7.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 58 hedge funds with bullish positions and the average amount invested in these stocks was $4744 million. That figure was $11561 million in MA's case. UnitedHealth Group Inc. (NYSE:UNH) is the most popular stock in this table. On the other hand Cisco Systems, Inc. (NASDAQ:CSCO) is the least popular one with only 45 bullish hedge fund positions. Compared to these stocks Mastercard Incorporated (NYSE:MA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.4% in Q2 and outperformed the S&P 500 ETF (SPY) by more than 2 percentage points. Hedge funds were also right about betting on MA as the stock returned 12.5% during the same period and outperformed the market by an even larger margin. Mastercard shares also gained more than 40% year-to-date. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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