Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and 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. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Marsh & McLennan Companies, Inc. (NYSE:MMC).
Marsh & McLennan Companies, Inc. (NYSE:MMC) has experienced an increase in enthusiasm from smart money of late. MMC was in 31 hedge funds’ portfolios at the end of December. There were 28 hedge funds in our database with MMC holdings at the end of the previous quarter. Our calculations also showed that MMC 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind we’re going to take a peek at the latest hedge fund action surrounding Marsh & McLennan Companies, Inc. (NYSE:MMC).
How are hedge funds trading Marsh & McLennan Companies, Inc. (NYSE:MMC)?
At Q4’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in MMC a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Polar Capital held the most valuable stake in Marsh & McLennan Companies, Inc. (NYSE:MMC), which was worth $203.8 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $136.9 million worth of shares. Markel Gayner Asset Management, AQR Capital Management, and Adage Capital Management 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 Bishop Rock Capital allocated the biggest weight to Marsh & McLennan Companies, Inc. (NYSE:MMC), around 4.63% of its 13F portfolio. Polar Capital is also relatively very bullish on the stock, setting aside 1.77 percent of its 13F equity portfolio to MMC.
As one would reasonably expect, some big names have jumped into Marsh & McLennan Companies, Inc. (NYSE:MMC) headfirst. Sciencast Management, managed by Qing Li, initiated the biggest position in Marsh & McLennan Companies, Inc. (NYSE:MMC). Sciencast Management had $3.2 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $0.4 million position during the quarter. The other funds with brand new MMC positions are John Brandmeyer’s Cognios Capital, George Zweig, Shane Haas and Ravi Chander’s Signition LP, and Frederick DiSanto’s Ancora Advisors.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Marsh & McLennan Companies, Inc. (NYSE:MMC) but similarly valued. These stocks are Applied Materials, Inc. (NASDAQ:AMAT), Schlumberger Limited. (NYSE:SLB), Ecolab Inc. (NYSE:ECL), and Global Payments Inc (NYSE:GPN). This group of stocks’ market caps are closest to MMC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMAT | 72 | 3452552 | 17 |
| SLB | 47 | 1207839 | -6 |
| ECL | 44 | 2301979 | 2 |
| GPN | 64 | 4063969 | -4 |
| Average | 56.75 | 2756585 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 56.75 hedge funds with bullish positions and the average amount invested in these stocks was $2757 million. That figure was $649 million in MMC’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Ecolab Inc. (NYSE:ECL) is the least popular one with only 44 bullish hedge fund positions. Compared to these stocks Marsh & McLennan Companies, Inc. (NYSE:MMC) is even less popular than ECL. Hedge funds clearly dropped the ball on MMC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on MMC as the stock returned -10.8% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
