World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Hedge fund interest in MSCI Inc (NYSE:MSCI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare MSCI to other stocks including Cheniere Energy Partners LP (NYSE:CQP), Entergy Corporation (NYSE:ETR), and Aptiv PLC (NYSE:APTV) to get a better sense of its popularity.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the recent hedge fund action surrounding MSCI Inc (NYSE:MSCI).
How are hedge funds trading MSCI Inc (NYSE:MSCI)?
At Q2’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2019. By comparison, 30 hedge funds held shares or bullish call options in MSCI a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in MSCI Inc (NYSE:MSCI) was held by Renaissance Technologies, which reported holding $238.5 million worth of stock at the end of March. It was followed by GLG Partners with a $119.2 million position. Other investors bullish on the company included Arrowstreet Capital, Kylin Management, and Fisher Asset Management.
Seeing as MSCI Inc (NYSE:MSCI) has witnessed declining sentiment from the smart money, logic holds that there is a sect of hedge funds that elected to cut their positions entirely last quarter. At the top of the heap, Lei Zhang’s Hillhouse Capital Management dumped the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at close to $25.5 million in stock. Andrew Feldstein and Stephen Siderow’s fund, Blue Mountain Capital, also dropped its stock, about $2.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as MSCI Inc (NYSE:MSCI) but similarly valued. These stocks are Cheniere Energy Partners LP (NYSE:CQP), Entergy Corporation (NYSE:ETR), Aptiv PLC (NYSE:APTV), and CoStar Group Inc (NASDAQ:CSGP). This group of stocks’ market caps are closest to MSCI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CQP | 7 | 13732 | 0 |
| ETR | 30 | 1492309 | -3 |
| APTV | 26 | 910163 | -7 |
| CSGP | 32 | 1169953 | 0 |
| Average | 23.75 | 896539 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $897 million. That figure was $775 million in MSCI’s case. CoStar Group Inc (NASDAQ:CSGP) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks MSCI Inc (NYSE:MSCI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MSCI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MSCI were disappointed as the stock returned -8.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks (see the video below) among hedge funds as many of these stocks already outperformed the market in Q3.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
