In this article you are going to find out whether hedge funds think Morgan Stanley (NYSE:MS) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Morgan Stanley (NYSE:MS) has experienced an increase in hedge fund sentiment of late. MS was in 70 hedge funds’ portfolios at the end of March. There were 60 hedge funds in our database with MS positions at the end of the previous quarter. Our calculations also showed that MS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
To most shareholders, hedge funds are assumed to be underperforming, outdated financial tools of the past. While there are greater than 8000 funds in operation today, Our researchers hone in on the top tier of this club, around 850 funds. These money managers administer the lion’s share of the hedge fund industry’s total asset base, and by monitoring their finest investments, Insider Monkey has identified many investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Richard S. Pzena of Pzena Investment Management
At Insider Monkey 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 believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the latest hedge fund action encompassing Morgan Stanley (NYSE:MS).
How have hedgies been trading Morgan Stanley (NYSE:MS)?
Heading into the second quarter of 2020, a total of 70 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. By comparison, 54 hedge funds held shares or bullish call options in MS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Morgan Stanley (NYSE:MS) was held by Eagle Capital Management, which reported holding $515.6 million worth of stock at the end of September. It was followed by ValueAct Capital with a $484.5 million position. Other investors bullish on the company included Arrowstreet Capital, Pzena Investment Management, and Diamond Hill Capital. In terms of the portfolio weights assigned to each position Kettle Hill Capital Management allocated the biggest weight to Morgan Stanley (NYSE:MS), around 8.84% of its 13F portfolio. Springhouse Capital Management is also relatively very bullish on the stock, earmarking 7.23 percent of its 13F equity portfolio to MS.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Greenhaven Associates, managed by Edgar Wachenheim, initiated the largest position in Morgan Stanley (NYSE:MS). Greenhaven Associates had $99.1 million invested in the company at the end of the quarter. Robert Pohly’s Samlyn Capital also initiated a $57.4 million position during the quarter. The following funds were also among the new MS investors: Louis Bacon’s Moore Global Investments, John Overdeck and David Siegel’s Two Sigma Advisors, and Andrew Kurita’s Kettle Hill Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Morgan Stanley (NYSE:MS). These stocks are Northrop Grumman Corporation (NYSE:NOC), VMware, Inc. (NYSE:VMW), Chubb Limited (NYSE:CB), and The Bank of Nova Scotia (NYSE:BNS). This group of stocks’ market values match MS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NOC | 45 | 984213 | 1 |
| VMW | 27 | 420625 | -6 |
| CB | 33 | 691382 | 9 |
| BNS | 12 | 240173 | -4 |
| Average | 29.25 | 584098 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $584 million. That figure was $3116 million in MS’s case. Northrop Grumman Corporation (NYSE:NOC) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Morgan Stanley (NYSE:MS) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on MS, though not to the same extent, as the stock returned 19.1% in Q2 (through May 22nd) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
