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Were Hedge Funds Right About Microsoft Corporation (MSFT)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Microsoft Corporation (NASDAQ:MSFT) to find out whether there were any major changes in hedge funds' views.

Microsoft Corporation (NASDAQ:MSFT) shareholders have witnessed a decrease in support from the world's most elite money managers lately. Microsoft Corporation (NASDAQ:MSFT) was in 251 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 258. Our calculations also showed that MSFT ranked #2 among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Today there are a lot of signals shareholders put to use to evaluate their holdings. Two of the most under-the-radar signals are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the top money managers can outpace their index-focused peers by a significant margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Chase Coleman of Tiger Global

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to take a peek at the latest hedge fund action surrounding Microsoft Corporation (NASDAQ:MSFT).

Do Hedge Funds Think MSFT Is A Good Stock To Buy Now?

At first quarter's end, a total of 251 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. By comparison, 235 hedge funds held shares or bullish call options in MSFT 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.

Is MDFT A Good Stock To Buy?
Is MDFT A Good Stock To Buy?

More specifically, Fisher Asset Management was the largest shareholder of Microsoft Corporation (NASDAQ:MSFT), with a stake worth $5656.1 million reported as of the end of March. Trailing Fisher Asset Management was TCI Fund Management, which amassed a stake valued at $4829.4 million. Tiger Global Management LLC, Fundsmith LLP, and Eagle 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 Lunia Capital allocated the biggest weight to Microsoft Corporation (NASDAQ:MSFT), around 29.99% of its 13F portfolio. Joho Capital is also relatively very bullish on the stock, earmarking 27.21 percent of its 13F equity portfolio to MSFT.

Judging by the fact that Microsoft Corporation (NASDAQ:MSFT) has faced falling interest from hedge fund managers, it's easy to see that there were a few funds that elected to cut their full holdings last quarter. At the top of the heap, Gabriel Plotkin's Melvin Capital Management sold off the largest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $276.5 million in stock, and Karthik Sarma's SRS Investment Management was right behind this move, as the fund cut about $212.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 7 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Microsoft Corporation (NASDAQ:MSFT) but similarly valued. These stocks are Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), Facebook Inc (NASDAQ:FB), Tesla Inc. (NASDAQ:TSLA), Alibaba Group Holding Limited (NYSE:BABA), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), and Berkshire Hathaway Inc. (NYSE:BRK-B). This group of stocks' market valuations are closest to MSFT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AMZN,243,50421816,-30 GOOGL,185,24573668,6 FB,257,40967433,15 TSLA,62,10013166,-6 BABA,135,15497689,-21 TSM,76,10870661,4 BRK-B,111,19880791,1 Average,152.7,24603603,-4.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 152.7 hedge funds with bullish positions and the average amount invested in these stocks was $24604 million. That figure was $58965 million in MSFT's case. Facebook Inc (NASDAQ:FB) is the most popular stock in this table. On the other hand Tesla Inc. (NASDAQ:TSLA) is the least popular one with only 62 bullish hedge fund positions. Microsoft Corporation (NASDAQ:MSFT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MSFT is 98.7. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.8% in 2021 through August 6th and still beat the market by 6.7 percentage points. Hedge funds were also right about betting on MSFT as the stock returned 23.1% since the end of Q1 (through 8/6) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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