Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Morgan Stanley (NYSE:MS).
Morgan Stanley (NYSE:MS) has seen a decrease in activity from the world’s largest hedge funds lately. At the end of this article we will also compare MS to other stocks including Ford Motor Company (NYSE:F), Kimberly Clark Corp (NYSE:KMB), and The Southern Company (NYSE:SO) to get a better sense of its popularity.
Follow Morgan Stanley (NYSE:MS)
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Keeping this in mind, let’s view the key action surrounding Morgan Stanley (NYSE:MS).
How are hedge funds trading Morgan Stanley (NYSE:MS)?
At Q3’s end, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, ValueAct Capital, managed by Jeffrey Ubben, holds the biggest position in Morgan Stanley (NYSE:MS). ValueAct Capital has a $1.34 billion position in the stock, comprising 11.7% of its 13F portfolio. Coming in second is Boykin Curry of Eagle Capital Management, with a $482.5 million position; 2.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish consist of Ric Dillon’s Diamond Hill Capital, Richard S. Pzena’s Pzena Investment Management and Ken Heebner’s Capital Growth Management.
Because Morgan Stanley (NYSE:MS) has experienced declining sentiment from the smart money, it’s easy to see that there exists a select few hedgies that decided to sell off their entire stakes in the third quarter. Interestingly, Ken Griffin’s Citadel Investment Group cut the largest investment of the 700 funds monitored by Insider Monkey, comprising about $29.3 million in call options. Daniel S. Och’s OZ Management was right behind this move, as the fund said goodbye to about $15.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Morgan Stanley (NYSE:MS) but similarly valued. We will take a look at Ford Motor Company (NYSE:F), Kimberly Clark Corp (NYSE:KMB), The Southern Company (NYSE:SO), and American Tower Corp (NYSE:AMT). This group of stocks’ market caps match MS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| F | 32 | 683624 | 1 |
| KMB | 29 | 1420992 | 7 |
| SO | 20 | 568071 | -1 |
| AMT | 48 | 2928784 | -1 |
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 $1.4 billion. That figure was $3.63 billion in MS’s case. American Tower Corp (NYSE:AMT) is the most popular stock in this table. On the other hand The Southern Company (NYSE:SO) is the least popular one with only 20 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard AMT might be a better candidate to consider a long position.
