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

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended March 31st, so let’s proceed with the discussion of the hedge fund sentiment on Morningstar, Inc. (NASDAQ:MORN).

Morningstar, Inc. (NASDAQ:MORN) was in 25 hedge funds’ portfolios at the end of March. The all time high for this statistic is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. MORN investors should pay attention to an increase in hedge fund sentiment recently. There were 19 hedge funds in our database with MORN holdings at the end of December. Our calculations also showed that MORN isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. 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 check out the latest hedge fund action encompassing Morningstar, Inc. (NASDAQ:MORN).

Do Hedge Funds Think MORN Is A Good Stock To Buy Now?

At first quarter’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MORN over the last 23 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Morningstar, Inc. (NASDAQ:MORN) was held by Select Equity Group, which reported holding $690.7 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $113.9 million position. Other investors bullish on the company included Royce & Associates, Echo Street Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Becker Drapkin Management allocated the biggest weight to Morningstar, Inc. (NASDAQ:MORN), around 3.12% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, setting aside 2.51 percent of its 13F equity portfolio to MORN.

As industrywide interest jumped, key money managers have been driving this bullishness. Echo Street Capital Management, managed by Greg Poole, assembled the most valuable position in Morningstar, Inc. (NASDAQ:MORN). Echo Street Capital Management had $63.1 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $2.3 million position during the quarter. The other funds with new positions in the stock are Ian Simm’s Impax Asset Management, Michael Gelband’s ExodusPoint Capital, and Donald Sussman’s Paloma Partners.

Let’s also examine hedge fund activity in other stocks similar to Morningstar, Inc. (NASDAQ:MORN). We will take a look at Regency Centers Corp (NASDAQ:REG), Aramark (NYSE:ARMK), Inphi Corporation (NYSE:IPHI), Builders FirstSource, Inc. (NASDAQ:BLDR), Centrais Elétricas Brasileiras S.A. – Eletrobrás (NYSE:EBR), Levi Strauss & Co. (NYSE:LEVI), and Melco Resorts & Entertainment Limited (NASDAQ:MLCO). This group of stocks’ market valuations match MORN’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $838 million. That figure was $1044 million in MORN’s case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand Centrais Elétricas Brasileiras S.A. – Eletrobrás (NYSE:EBR) is the least popular one with only 5 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. Our overall hedge fund sentiment score for MORN is 63.3. 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 24% in 2021 through July 9th and beat the market by 6.7 percentage points. A small number of hedge funds were also right about betting on MORN, though not to the same extent, as the stock returned 12.7% since the end of Q1 (through July 9th) and outperformed the market.

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Disclosure: None. This article was originally published at Insider Monkey.