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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Morningstar, Inc. (NASDAQ:MORN) based on that data and determine whether they were really smart about the stock.
Morningstar, Inc. (NASDAQ:MORN) has seen a decrease in activity from the world's largest hedge funds recently. Our calculations also showed that MORN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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Matthew Hulsizer of PEAK6 Capital[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 18 cities with the best air quality to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's go over the key hedge fund action surrounding Morningstar, Inc. (NASDAQ:MORN).
How have hedgies been trading Morningstar, Inc. (NASDAQ:MORN)?
Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -38% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MORN over the last 18 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the biggest position in Morningstar, Inc. (NASDAQ:MORN), worth close to $83.4 million, accounting for 0.1% of its total 13F portfolio. The second largest stake is held by Royce & Associates, led by Chuck Royce, holding a $59.9 million position; the fund has 0.8% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions include Robert Joseph Caruso's Select Equity Group, Israel Englander's Millennium Management and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Morningstar, Inc. (NASDAQ:MORN), around 0.82% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, designating 0.37 percent of its 13F equity portfolio to MORN.
Seeing as Morningstar, Inc. (NASDAQ:MORN) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds who sold off their full holdings in the first quarter. Interestingly, Mika Toikka's AlphaCrest Capital Management dumped the largest investment of the 750 funds watched by Insider Monkey, comprising about $0.7 million in stock. Matthew Hulsizer's fund, PEAK6 Capital Management, also sold off its stock, about $0.7 million worth. These moves are interesting, as aggregate hedge fund interest fell by 8 funds in the first quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Morningstar, Inc. (NASDAQ:MORN) but similarly valued. These stocks are Kemper Corporation (NYSE:KMPR), Levi Strauss & Co. (NYSE:LEVI), Ralph Lauren Corporation (NYSE:RL), and Lear Corporation (NYSE:LEA). All of these 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 KMPR,13,48502,-7 LEVI,11,34012,0 RL,26,402740,-11 LEA,28,581083,-1 Average,19.5,266584,-4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $267 million. That figure was $236 million in MORN's case. Lear Corporation (NYSE:LEA) is the most popular stock in this table. On the other hand Levi Strauss & Co. (NYSE:LEVI) is the least popular one with only 11 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 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on MORN, though not to the same extent, as the stock returned 24.1% during the second quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.