Coronavirus is probably the #1 concern in investors’ minds right now. It should be. We estimate that COVID-19 will kill around 5 million people worldwide and there is a 3.3% probability that Donald Trump will die from the new coronavirus (read the details). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Morgan Stanley (NYSE:MS) in this article.
Is Morgan Stanley (NYSE:MS) going to take off soon? Money managers are in a pessimistic mood. The number of bullish hedge fund bets dropped by 8 lately. Our calculations also showed that MS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). MS was in 60 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 68 hedge funds in our database with MS holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Boykin Curry of Eagle Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s take a look at the fresh hedge fund action encompassing Morgan Stanley (NYSE:MS).
Hedge fund activity in Morgan Stanley (NYSE:MS)
At the end of the foruth quarter, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from one quarter earlier. By comparison, 57 hedge funds held shares or bullish call options in MS a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Eagle Capital Management was the largest shareholder of Morgan Stanley (NYSE:MS), with a stake worth $783.9 million reported as of the end of September. Trailing Eagle Capital Management was ValueAct Capital, which amassed a stake valued at $766.8 million. Pzena Investment Management, Diamond Hill Capital, and GLG Partners 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 Tegean Capital Management allocated the biggest weight to Morgan Stanley (NYSE:MS), around 11.38% of its 13F portfolio. Springhouse Capital Management is also relatively very bullish on the stock, setting aside 8.94 percent of its 13F equity portfolio to MS.
Because Morgan Stanley (NYSE:MS) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedgies who were dropping their full holdings heading into Q4. Interestingly, Renaissance Technologies said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, worth close to $105.4 million in stock. Edgar Wachenheim’s fund, Greenhaven Associates, also dumped its stock, about $11.7 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 8 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Morgan Stanley (NYSE:MS) but similarly valued. These stocks are Gilead Sciences, Inc. (NASDAQ:GILD), Caterpillar Inc. (NYSE:CAT), Goldman Sachs Group, Inc. (NYSE:GS), and Enbridge Inc (NYSE:ENB). This group of stocks’ market values are closest to MS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GILD | 67 | 3722904 | 1 |
| CAT | 52 | 3227642 | 13 |
| GS | 75 | 7581397 | -3 |
| ENB | 21 | 285809 | 1 |
| Average | 53.75 | 3704438 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 53.75 hedge funds with bullish positions and the average amount invested in these stocks was $3704 million. That figure was $3846 million in MS’s case. Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 21 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately MS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MS were disappointed as the stock returned -8.5% during the same time period 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 among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
