We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Morgan Stanley (NYSE:MS).
Is Morgan Stanley (NYSE:MS) a buy, sell, or hold? Money managers were in a bearish mood. The number of long hedge fund positions were cut by 10 recently. Morgan Stanley (NYSE:MS) was in 69 hedge funds’ portfolios at the end of June. The all time high for this statistic is 79. Our calculations also showed that MS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 79 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Boykin Curry of Eagle Capital
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. Keeping this in mind let’s take a glance at the recent hedge fund action surrounding Morgan Stanley (NYSE:MS).
Do Hedge Funds Think MS Is A Good Stock To Buy Now?
At the end of June, a total of 69 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. By comparison, 61 hedge funds held shares or bullish call options in MS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Eagle Capital Management was the largest shareholder of Morgan Stanley (NYSE:MS), with a stake worth $1420.3 million reported as of the end of June. Trailing Eagle Capital Management was Fisher Asset Management, which amassed a stake valued at $893.3 million. GQG Partners, Diamond Hill Capital, and Citadel Investment Group 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 Bridger Management allocated the biggest weight to Morgan Stanley (NYSE:MS), around 5% of its 13F portfolio. Eagle Capital Management is also relatively very bullish on the stock, designating 4.05 percent of its 13F equity portfolio to MS.
Because Morgan Stanley (NYSE:MS) has witnessed a decline in interest from the smart money, logic holds that there lies a certain “tier” of hedgies who sold off their positions entirely last quarter. It’s worth mentioning that Robert Pohly’s Samlyn Capital cut the largest position of the 750 funds watched by Insider Monkey, comprising about $174.1 million in stock. Brad Farber’s fund, Atika Capital, also cut its stock, about $15.5 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 10 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Morgan Stanley (NYSE:MS) but similarly valued. We will take a look at Medtronic plc (NYSE:MDT), SAP SE (NYSE:SAP), QUALCOMM, Incorporated (NASDAQ:QCOM), Pinduoduo Inc. (NASDAQ:PDD), AstraZeneca plc (NYSE:AZN), Philip Morris International Inc. (NYSE:PM), and Royal Dutch Shell plc (NYSE:RDS). All of these stocks’ market caps are closest to MS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MDT | 68 | 3390607 | 3 |
| SAP | 17 | 1603691 | -2 |
| QCOM | 72 | 4047519 | -1 |
| PDD | 49 | 5276960 | -7 |
| AZN | 37 | 2772286 | 3 |
| PM | 46 | 5973614 | -2 |
| RDS | 38 | 2444791 | 2 |
| Average | 46.7 | 3644210 | -0.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.7 hedge funds with bullish positions and the average amount invested in these stocks was $3644 million. That figure was $5348 million in MS’s case. QUALCOMM, Incorporated (NASDAQ:QCOM) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 17 bullish hedge fund positions. Morgan Stanley (NYSE:MS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MS is 68.5. 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 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. Hedge funds were also right about betting on MS as the stock returned 15.5% since the end of Q2 (through 9/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Morgan Stanley (NYSE:MS)
Follow Morgan Stanley (NYSE:MS)
Suggested Articles:
- 20 Best Countries To Invest In Real Estate
- 10 Best Entertainment Stocks to Invest In
- 10 Reddit’s WallStreetBets Meme Stocks Hedge Funds are Piling Into
Disclosure: None. This article was originally published at Insider Monkey.
