Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Moody’s Corporation (NYSE:MCO) makes for a good investment right now.
Is Moody’s Corporation (NYSE:MCO) an outstanding investment now? Investors who are in the know are taking a bearish view. The number of bullish hedge fund bets decreased by 6 recently. Our calculations also showed that MCO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Warren Buffett of Berkshire Hathaway
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 new hedge fund action regarding Moody’s Corporation (NYSE:MCO).
How are hedge funds trading Moody’s Corporation (NYSE:MCO)?
At the end of the fourth quarter, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MCO over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Moody’s Corporation (NYSE:MCO) was held by Berkshire Hathaway, which reported holding $5856.9 million worth of stock at the end of September. It was followed by Akre Capital Management with a $1348.9 million position. Other investors bullish on the company included Windacre Partnership, AltaRock Partners, and Triple Frond Partners. In terms of the portfolio weights assigned to each position Rings Capital Management allocated the biggest weight to Moody’s Corporation (NYSE:MCO), around 38.17% of its 13F portfolio. Valley Forge Capital is also relatively very bullish on the stock, earmarking 20.76 percent of its 13F equity portfolio to MCO.
Due to the fact that Moody’s Corporation (NYSE:MCO) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of funds that elected to cut their positions entirely in the third quarter. It’s worth mentioning that Nicolai Tangen’s Ako Capital sold off the biggest stake of all the hedgies monitored by Insider Monkey, totaling about $93.8 million in stock. David Harding’s fund, Winton Capital Management, also dropped its stock, about $9.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 6 funds in the third 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 American International Group Inc (NYSE:AIG), Exelon Corporation (NYSE:EXC), Pinduoduo Inc. (NASDAQ:PDD), and Koninklijke Philips NV (NYSE:PHG). This group of stocks’ market valuations are similar to MCO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AIG | 52 | 2870459 | -1 |
| EXC | 36 | 1822287 | -2 |
| PDD | 32 | 1682011 | 1 |
| PHG | 9 | 179950 | 1 |
| Average | 32.25 | 1638677 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1639 million. That figure was $9218 million in MCO’s case. American International Group Inc (NYSE:AIG) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 9 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 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 lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on MCO as the stock returned -11% during the first quarter (through March 9th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
