In this article we are going to use hedge fund sentiment as a tool and determine whether Moelis & Company (NYSE:MC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Moelis & Company (NYSE:MC) investors should be aware of a decrease in activity from the world's largest hedge funds recently. Moelis & Company (NYSE:MC) was in 19 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 23. Our calculations also showed that MC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Donald Sussman of Paloma Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. Keeping this in mind we're going to take a look at the latest hedge fund action encompassing Moelis & Company (NYSE:MC).
Do Hedge Funds Think MC Is A Good Stock To Buy Now?
At the end of March, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in MC 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce's Royce & Associates has the largest position in Moelis & Company (NYSE:MC), worth close to $53.1 million, accounting for 0.4% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $20.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism consist of William Heard's Heard Capital, Ken Griffin's Citadel Investment Group and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Heard Capital allocated the biggest weight to Moelis & Company (NYSE:MC), around 4.72% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, dishing out 0.87 percent of its 13F equity portfolio to MC.
Because Moelis & Company (NYSE:MC) has witnessed declining sentiment from the entirety of the hedge funds we track, it's safe to say that there were a few money managers who sold off their positions entirely in the first quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management dropped the largest stake of all the hedgies followed by Insider Monkey, comprising close to $4.2 million in stock, and Daniel Johnson's Gillson Capital was right behind this move, as the fund sold off about $4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds in the first quarter.
Let's go over hedge fund activity in other stocks similar to Moelis & Company (NYSE:MC). We will take a look at Insmed Incorporated (NASDAQ:INSM), Extended Stay America Inc (NYSE:STAY), FormFactor, Inc. (NASDAQ:FORM), ALLETE Inc (NYSE:ALE), Worthington Industries, Inc. (NYSE:WOR), Clearway Energy, Inc. (NYSE:CWEN), and Karuna Therapeutics, Inc. (NASDAQ:KRTX). All of these stocks' market caps are closest to MC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INSM,22,573375,-6 STAY,39,905852,16 FORM,17,156169,-1 ALE,16,94177,5 WOR,14,48616,6 CWEN,24,232260,2 KRTX,23,396412,6 Average,22.1,343837,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.1 hedge funds with bullish positions and the average amount invested in these stocks was $344 million. That figure was $142 million in MC's case. Extended Stay America Inc (NYSE:STAY) is the most popular stock in this table. On the other hand Worthington Industries, Inc. (NYSE:WOR) is the least popular one with only 14 bullish hedge fund positions. Moelis & Company (NYSE:MC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MC is 38.8. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately MC wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MC investors were disappointed as the stock returned 3% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.