Here is What Hedge Funds Think About Microsoft Corporation (MSFT)

In this article we are going to use hedge fund sentiment as a tool and determine whether Microsoft Corporation (NASDAQ:MSFT) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Microsoft Corporation (NASDAQ:MSFT) shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. Microsoft Corporation (NASDAQ:MSFT) was in 238 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 258. Our calculations also showed that MSFT ranked #3 among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.

Chris Hohn of TCI Fund 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. Keeping this in mind we’re going to view the key hedge fund action encompassing Microsoft Corporation (NASDAQ:MSFT).

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

Heading into the third quarter of 2021, a total of 238 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MSFT over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Fisher Asset Management was the largest shareholder of Microsoft Corporation (NASDAQ:MSFT), with a stake worth $6721.9 million reported as of the end of June. Trailing Fisher Asset Management was TCI Fund Management, which amassed a stake valued at $5549 million. Arrowstreet Capital, Citadel Investment Group, and Tiger Global Management LLC 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 Skye Global Management allocated the biggest weight to Microsoft Corporation (NASDAQ:MSFT), around 30.61% of its 13F portfolio. Joho Capital is also relatively very bullish on the stock, earmarking 28.61 percent of its 13F equity portfolio to MSFT.

Judging by the fact that Microsoft Corporation (NASDAQ:MSFT) has faced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few money managers that elected to cut their entire stakes by the end of the second quarter. At the top of the heap, Masayoshi Son’s SB Management said goodbye to the biggest position of all the hedgies followed by Insider Monkey, worth close to $1030 million in stock, and Eashwar Krishnan’s Tybourne Capital Management was right behind this move, as the fund sold off about $293.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 13 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Microsoft Corporation (NASDAQ:MSFT). These stocks are Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), Facebook Inc (NASDAQ:FB), Tesla Inc. (NASDAQ:TSLA), Alibaba Group Holding Limited (NYSE:BABA), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Berkshire Hathaway Inc. (NYSE:BRK-B). All of these stocks’ market caps are closest to MSFT’s market cap.

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As you can see these stocks had an average of 159 hedge funds with bullish positions and the average amount invested in these stocks was $26977 million. That figure was $62465 million in MSFT’s case. Amazon.com, Inc. (NASDAQ:AMZN) is the most popular stock in this table. On the other hand Tesla Inc. (NASDAQ:TSLA) is the least popular one with only 60 bullish hedge fund positions. Microsoft Corporation (NASDAQ:MSFT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MSFT is 96.7. 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 24.1% in 2021 through September 20th and still beat the market by 6.9 percentage points. Hedge funds were also right about betting on MSFT as the stock returned 8.8% since the end of Q2 (through 9/20) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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