While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Marsh & McLennan Companies, Inc. (NYSE:MMC).
Marsh & McLennan Companies, Inc. (NYSE:MMC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 29 hedge funds’ portfolios at the end of the second quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Prologis Inc (NYSE:PLD), Lloyds Banking Group PLC (NYSE:LYG), and EOG Resources Inc (NYSE:EOG) to gather more data points.
If you’d ask most investors, hedge funds are viewed as unimportant, old financial vehicles of yesteryear. While there are more than 8000 funds in operation today, Our researchers choose to focus on the moguls of this group, around 750 funds. Most estimates calculate that this group of people have their hands on the lion’s share of the hedge fund industry’s total capital, and by tailing their inimitable picks, Insider Monkey has unsheathed a number of investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the fresh hedge fund action surrounding Marsh & McLennan Companies, Inc. (NYSE:MMC).
How are hedge funds trading Marsh & McLennan Companies, Inc. (NYSE:MMC)?
At Q2’s end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MMC over the last 16 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of Marsh & McLennan Companies, Inc. (NYSE:MMC), with a stake worth $154.8 million reported as of the end of March. Trailing Diamond Hill Capital was Polar Capital, which amassed a stake valued at $147.1 million. Citadel Investment Group, Adage Capital Management, and Markel Gayner Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Marsh & McLennan Companies, Inc. (NYSE:MMC) has faced falling interest from the smart money, we can see that there is a sect of fund managers who were dropping their positions entirely in the second quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, totaling close to $8.9 million in stock. Andrew Feldstein and Stephen Siderow’s fund, Blue Mountain Capital, also dumped its stock, about $4.7 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to Marsh & McLennan Companies, Inc. (NYSE:MMC). We will take a look at Prologis Inc (NYSE:PLD), Lloyds Banking Group PLC (NYSE:LYG), EOG Resources Inc (NYSE:EOG), and Air Products and Chemicals, Inc. (NYSE:APD). This group of stocks’ market values resemble MMC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLD | 24 | 457047 | -1 |
| LYG | 8 | 52501 | 0 |
| EOG | 36 | 1212228 | -3 |
| APD | 32 | 506090 | -2 |
| Average | 25 | 556967 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $557 million. That figure was $742 million in MMC’s case. EOG Resources Inc (NYSE:EOG) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 8 bullish hedge fund positions. Marsh & McLennan Companies, Inc. (NYSE:MMC) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MMC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MMC were disappointed as the stock returned 0.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks (see the video below) among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
