Were Hedge Funds Right About S&P Global Inc. (SPGI)?
Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about S&P Global Inc. (NYSE:SPGI).
S&P Global Inc. (NYSE:SPGI) has experienced a decrease in hedge fund sentiment lately. S&P Global Inc. (NYSE:SPGI) was in 71 hedge funds' portfolios at the end of June. The all time high for this statistics is 76. Our calculations also showed that SPGI 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dan Loeb of Third Point
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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. With all of this in mind let's analyze the fresh hedge fund action surrounding S&P Global Inc. (NYSE:SPGI).
What have hedge funds been doing with S&P Global Inc. (NYSE:SPGI)?
At Q2's end, a total of 71 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in SPGI over the last 20 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Cantillon Capital Management, managed by William von Mueffling, holds the largest position in S&P Global Inc. (NYSE:SPGI). Cantillon Capital Management has a $869.5 million position in the stock, comprising 7.6% of its 13F portfolio. The second most bullish fund manager is Dan Loeb of Third Point, with a $255.3 million position; 3.5% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish comprise Dev Kantesaria's Valley Forge Capital, John Overdeck and David Siegel's Two Sigma Advisors and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Rings Capital Management allocated the biggest weight to S&P Global Inc. (NYSE:SPGI), around 46.56% of its 13F portfolio. Valley Forge Capital is also relatively very bullish on the stock, earmarking 21.93 percent of its 13F equity portfolio to SPGI.
Seeing as S&P Global Inc. (NYSE:SPGI) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of fund managers who sold off their full holdings last quarter. Intriguingly, John Armitage's Egerton Capital Limited dumped the biggest stake of all the hedgies monitored by Insider Monkey, totaling close to $123.8 million in stock. James Parsons's fund, Junto Capital Management, also said goodbye to its stock, about $48.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as S&P Global Inc. (NYSE:SPGI) but similarly valued. These stocks are BP plc (NYSE:BP), Diageo plc (NYSE:DEO), Intuit Inc. (NASDAQ:INTU), ServiceNow Inc (NYSE:NOW), American Express Company (NYSE:AXP), Morgan Stanley (NYSE:MS), and Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). This group of stocks' market values are closest to SPGI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BP,27,736756,-4 DEO,20,653839,3 INTU,53,1735265,-1 NOW,86,4949673,1 AXP,54,17635296,-3 MS,61,4357171,-9 VRTX,54,3477688,-2 Average,50.7,4792241,-2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 50.7 hedge funds with bullish positions and the average amount invested in these stocks was $4792 million. That figure was $3025 million in SPGI's case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 20 bullish hedge fund positions. S&P Global Inc. (NYSE:SPGI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SPGI is 69.7. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately SPGI wasn't nearly as popular as these 10 stocks and hedge funds that were betting on SPGI were disappointed as the stock returned 5.9% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
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