Hedge Funds Never Been This Bullish On Morgan Stanley (MS)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 866 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their March 31st holdings, data that is available nowhere else. Should you consider Morgan Stanley (NYSE:MS) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Morgan Stanley (NYSE:MS) investors should be aware of an increase in enthusiasm from smart money lately. Morgan Stanley (NYSE:MS) was in 79 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 70. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MS 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.

Ric Dillon of Diamond Hill Capital

At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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 go over the latest hedge fund action encompassing Morgan Stanley (NYSE:MS).

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

At first quarter’s end, a total of 79 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MS 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 Morgan Stanley (NYSE:MS) was held by Eagle Capital Management, which reported holding $924.5 million worth of stock at the end of December. It was followed by Fisher Asset Management with a $738.3 million position. Other investors bullish on the company included GQG Partners, Greenhaven Associates, and Diamond Hill Capital. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to Morgan Stanley (NYSE:MS), around 9.99% of its 13F portfolio. Toscafund Asset Management is also relatively very bullish on the stock, setting aside 7.31 percent of its 13F equity portfolio to MS.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, assembled the most valuable position in Morgan Stanley (NYSE:MS). Holocene Advisors had $76.6 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $32.8 million position during the quarter. The following funds were also among the new MS investors: Mika Toikka’s AlphaCrest Capital Management, Daniel Johnson’s Gillson Capital, and Greg Eisner’s Engineers Gate Manager.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Morgan Stanley (NYSE:MS) but similarly valued. These stocks are SAP SE (NYSE:SAP), Amgen, Inc. (NASDAQ:AMGN), HDFC Bank Limited (NYSE:HDB), Bristol Myers Squibb Company (NYSE:BMY), Philip Morris International Inc. (NYSE:PM), Shopify Inc (NYSE:SHOP), and Lowe’s Companies, Inc. (NYSE:LOW). This group of stocks’ market valuations match MS’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 53.4 hedge funds with bullish positions and the average amount invested in these stocks was $4304 million. That figure was $5285 million in MS’s case. Shopify Inc (NYSE:SHOP) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 19 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. Our overall hedge fund sentiment score for MS is 81.7. 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 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Hedge funds were also right about betting on MS as the stock returned 19% since the end of Q1 (through 6/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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