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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether Moelis & Company (NYSE:MC) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Moelis & Company (NYSE:MC) investors should pay attention to a decrease in hedge fund interest of late. Our calculations also showed that MC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s take a glance at the latest hedge fund action regarding Moelis & Company (NYSE:MC).
What have hedge funds been doing with Moelis & Company (NYSE:MC)?
At Q4’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in MC over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Israel Englander’s Millennium Management has the number one position in Moelis & Company (NYSE:MC), worth close to $18.8 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is Chuck Royce of Royce & Associates, with a $14.6 million position; 0.1% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism comprise Noam Gottesman’s GLG Partners, Ken Griffin’s Citadel Investment Group and Schonfeld Strategic Advisors. In terms of the portfolio weights assigned to each position Heard Capital allocated the biggest weight to Moelis & Company (NYSE:MC), around 2.08% of its 13F portfolio. Schonfeld Strategic Advisors is also relatively very bullish on the stock, earmarking 0.18 percent of its 13F equity portfolio to MC.
Due to the fact that Moelis & Company (NYSE:MC) has experienced declining sentiment from the smart money, we can see that there lies a certain “tier” of hedge funds that slashed their entire stakes last quarter. At the top of the heap, David Keidan’s Buckingham Capital Management said goodbye to the biggest investment of the 750 funds tracked by Insider Monkey, totaling about $4.9 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dumped its stock, about $3.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 5 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Moelis & Company (NYSE:MC) but similarly valued. These stocks are Arbor Realty Trust, Inc. (NYSE:ABR), Youdao, Inc. (NYSE:DAO), Chesapeake Utilities Corporation (NYSE:CPK), and KEMET Corporation (NYSE:KEM). This group of stocks’ market values are closest to MC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABR | 21 | 116544 | 7 |
| DAO | 3 | 3663 | 3 |
| CPK | 8 | 35601 | -1 |
| KEM | 21 | 191537 | 1 |
| Average | 13.25 | 86836 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $82 million in MC’s case. Arbor Realty Trust, Inc. (NYSE:ABR) is the most popular stock in this table. On the other hand Youdao, Inc. (NYSE:DAO) is the least popular one with only 3 bullish hedge fund positions. Moelis & Company (NYSE:MC) is not the least popular stock in this group but hedge fund interest is still below 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 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on MC as the stock returned -2.9% during the same time period and outperformed the market by an even larger margin.
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.
