Hedge Funds Are Dumping Moody’s Corporation (MCO)

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Moody’s Corporation (NYSE:MCO) changed recently.

Is Moody’s Corporation (NYSE:MCO) a cheap investment today? Prominent investors were getting less bullish. The number of bullish hedge fund positions dropped by 11 in recent months. Moody’s Corporation (NYSE:MCO) was in 44 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 61. Our calculations also showed that MCO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Charles Akre of Akre Capital Management

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. Now let’s go over the latest hedge fund action surrounding Moody’s Corporation (NYSE:MCO).

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

At Q2’s end, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from one quarter earlier. On the other hand, there were a total of 61 hedge funds with a bullish position in MCO 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.

Among these funds, Berkshire Hathaway held the most valuable stake in Moody’s Corporation (NYSE:MCO), which was worth $8939.6 million at the end of the second quarter. On the second spot was TCI Fund Management which amassed $2378.2 million worth of shares. Akre Capital Management, Valley Forge Capital, and Windacre Partnership 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 Rings Capital Management allocated the biggest weight to Moody’s Corporation (NYSE:MCO), around 38.53% of its 13F portfolio. Valley Forge Capital is also relatively very bullish on the stock, dishing out 16.26 percent of its 13F equity portfolio to MCO.

Seeing as Moody’s Corporation (NYSE:MCO) has faced a decline in interest from the aggregate hedge fund industry, we can see that there was a specific group of hedgies who sold off their positions entirely last quarter. At the top of the heap, Andreas Halvorsen’s Viking Global dropped the largest position of the “upper crust” of funds followed by Insider Monkey, comprising close to $512.4 million in stock, and Michael Hintze’s CQS Cayman LP was right behind this move, as the fund said goodbye to about $6.8 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 11 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Moody’s Corporation (NYSE:MCO) but similarly valued. We will take a look at Banco Santander, S.A. (NYSE:SAN), VMware, Inc. (NYSE:VMW), Intercontinental Exchange Inc (NYSE:ICE), Norfolk Southern Corp. (NYSE:NSC), Bank of Montreal (NYSE:BMO), Edwards Lifesciences Corporation (NYSE:EW), and Atlassian Corporation Plc (NASDAQ:TEAM). This group of stocks’ market valuations are similar to MCO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1738 million. That figure was $16046 million in MCO’s case. Atlassian Corporation Plc (NASDAQ:TEAM) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 12 bullish hedge fund positions. Moody’s Corporation (NYSE:MCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MCO is 46.4. 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 positive signal but 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 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately MCO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MCO were disappointed as the stock returned -0.7% since the end of June (through 10/1) 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 many of these stocks already outperformed the market since 2019.

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

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