Hedge Funds Are Crazy About Morningstar, Inc. (MORN)

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Morningstar, Inc. (NASDAQ:MORN) to find out whether it was one of their high conviction long-term ideas.

The stock of the investment research provider Morningstar, Inc. (NASDAQ:MORN) is deep in the green territory this year and investors should pay attention to an increase in activity from the world’s largest hedge funds of late. 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 Vermilion Energy Inc (NYSE:VET), Equity Commonwealth (NYSE:EQC), and Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) to gather more data points.

According to most shareholders, hedge funds are seen as underperforming, old financial vehicles of years past. While there are more than 8000 funds trading at present, We look at the leaders of this group, around 700 funds. These hedge fund managers have their hands on bulk of all hedge funds’ total asset base, and by paying attention to their matchless investments, Insider Monkey has revealed a number of investment strategies that have historically surpassed Mr. Market. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Now, let’s take a gander at the fresh action regarding Morningstar, Inc. (NASDAQ:MORN).

Hedge fund activity in Morningstar, Inc. (NASDAQ:MORN)

Heading into Q4, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 75% from the second quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the number one position in Morningstar, Inc. (NASDAQ:MORN), worth close to $124 million, amounting to 0.7% of its total 13F portfolio. The second most bullish fund manager is Ashe Capital, managed by William Crowley, William Harker, and Stephen Blass, which holds a $100.7 million position; the fund has 14.7% of its 13F portfolio invested in the stock. Remaining peers that are bullish consist of Jim Simons’ Renaissance Technologies, Ken Griffin’s Citadel Investment Group, and Israel Englander’s Millennium Management.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in Morningstar, Inc. (NASDAQ:MORN). Arrowstreet Capital had $0.7 million invested in the company at the end of the quarter. Mike Vranos’s Ellington also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are Cliff Asness’s AQR Capital Management, Ken Gray and Steve Walsh’s Bryn Mawr Capital, and Glenn Russell Dubin’s Highbridge Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Morningstar, Inc. (NASDAQ:MORN). These stocks are Vermilion Energy Inc (NYSE:VET), Equity Commonwealth (NYSE:EQC), Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), and Office Depot Inc (NYSE:ODP). This group of stocks’ market valuations match MORN’s market valuation.

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 $411 million. That figure was $267 million in MORN’s case. Office Depot Inc (NYSE:ODP) is the most popular stock in this table. On the other hand Vermilion Energy Inc (NYSE:VET) is the least popular one with only 6 bullish hedge fund positions. Morningstar, Inc. (NASDAQ:MORN) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ODP might be a better candidate to consider a long position.