In this article, we discuss the top 10 finance stock picks of Arrowstreet Capital as of the end of the third quarter of 2021 and assess their performance over the past 12 months. To see more such stocks and their performance, go to Was Arrowstreet Capital Right About These 5 Finance Stocks?
We prepared the actual contents of this article in January this year, when we analyzed the Q3 portfolio of Arrowstreet Capital to discuss the top 10 finance picks of the hedge fund at that time. We are publishing this article today because it’s always interesting for the readers to analyze how good the so-called “smart money” is when it comes to stock picking. When we look at the stock picks/sells of hedge funds in hindsight, we can better analyze their performance and see whether they were right or wrong.
In this article you will see the top 10 finance stock picks of Arrowstreet Capital as of the third quarter of last year.
To assess the performance of these stocks and the hedge fund, we have mentioned their performance over the past 12 months through November 25.
At the time of writing we had mentioned analyst ratings for these stocks from famous Wall Street analysts. It’d be interesting for our readers to see how right or wrong were these analysts’ price targets and calls.
An investment manager based in Boston, Arrowstreet Capital serves over 200 clients in North America, the United Kingdom, Europe, and the Asia-Pacific regions. The hedge fund was founded in 1999 by Peter Rathjens, Bruce Clarke, and Harvard professor John Campbell, and as of Q3 2021, it manages a portfolio worth approximately $80 billion, as well as discretionary assets under management of $152.3 billion.
The investment strategies at Arrowstreet Capital include long-only, alpha extension, and long/short, and the fund leverages multiple investment vehicles including swaps and futures. The fund focuses on quantitative investing, tracking risk, costs, and rewards via elaborate transaction models.
Arrowstreet Capital is known for responsible investing, keeping in mind the ESG considerations which can directly impact profitability and sustainability of earnings. The hedge fund primarily invests in the information technology, healthcare, finance, communications, consumer discretionary, and consumer staples sectors, with a top ten holdings concentration of 18.97%.
Peter Rathjens of Arrowstreet Capital
10. Fidelity National Information Services, Inc. (NYSE:FIS)
Arrowstreet Capital’s Stake Value: $169,519,000
Stock performance over the past 12 months through November 25: -38%
Fidelity National Information Services, Inc. (NYSE:FIS) is a Florida-based financial technology company providing financial products and services. The company specializes in banking technology, payment technology, processing services, and information based services. Arrowstreet Capital owns 1.39 million Fidelity National Information Services, Inc. (NYSE:FIS) shares as of September 2021, worth $169.5 million, representing 0.21% of the fund’s 13F portfolio.
Moshe Katri from the investment advisory Wedbush lowered the price target on Fidelity National Information Services, Inc. (NYSE:FIS) to $130 from $182 and kept an Outperform rating on the shares, citing reduced consumer spending due to inflationary pressure on prices of staple goods.
Here is what Baron FinTech Fund has to say about Fidelity National Information Services, Inc. (NYSE:FIS) in its Q3 2021 investor letter:
“Fidelity National Information Services, Inc. provides software to financial institutions and enables merchants to accept electronic payments. The company reported solid quarterly financial results that exceeded expectations and raised annual guidance for revenue and earnings. However, the stock fell due to concerns that Fidelity National’s legacy technology is losing market share to newer competitors with more modern technology. We believe these concerns are overblown and that Fidelity National remains well positioned to grow revenues organically at a high single-digit rate and earnings at a double-digit rate over time.”
9. Blackstone Inc. (NYSE:BX)
Arrowstreet Capital’s Stake Value: $206,488,000
Stock performance over the past 12 months through November 25: -37%
Blackstone Inc. (NYSE:BX), a New York-based alternative investment and private equity firm, is one of the top finance stocks to buy according to Arrowstreet Capital. The hedge fund elevated its position in Blackstone Inc. (NYSE:BX) by 49% in the third quarter, holding a total of 1.77 million shares worth $206.4 million.
Deutsche Bank analyst Brian Bedell raised the price target on Blackstone Inc. (NYSE:BX) to $190 from $152 and kept a Buy rating on the shares on December 17. The analyst heads into 2022 “even more constructive than at the start of 2021” on the brokers, asset managers, and exchanges sector.
Rajiv Jain’s GQG Partners is the largest stakeholder of Blackstone Inc. (NYSE:BX) as of September 2021, with 6.3 million shares worth $736.8 million. Overall, 54 hedge funds in the Q3 database of Insider Monkey reported owning stakes in Blackstone Inc. (NYSE:BX), valued at $2.5 billion.
Here is what Artisan Value Fund has to say about Blackstone Inc. (NYSE:BX) in its Q3 2021 investor letter:
“Among our top Q3 contributors were Blackstone. Investment stalwart Blackstone’s virtuous cycle is in full swing. Throughout Blackstone’s history, excellent investment performance and capital protection have allowed the firm to increase fundraising in existing verticals as well as launch new endeavors. Historically, less than 10% of assets under management mature in any given year, and that number should move lower with continued growth in perpetual capital vehicles. Blackstone’s A+ rated balance sheet and capital-light model are the backbone of its 85% of cash flow distribution policy via a variable quarterly dividend. In short, this is a long-duration fee stream and robust capital-raising engine.”
8. Intercontinental Exchange, Inc. (NYSE:ICE)
Arrowstreet Capital’s Stake Value: $238,200,000
Stock performance over the past 12 months through November 25: -17%
Intercontinental Exchange, Inc. (NYSE:ICE) is an American financial company offering global exchanges, clearing houses, mortgage technology, financial data, and listing services. Arrowstreet Capital increased its stake in Intercontinental Exchange, Inc. (NYSE:ICE) by 68% in Q3 2021, holding more than 2 million shares of the company, worth $238.2 million.
Deutsche Bank analyst Brian Bedell on December 17 raised the price target on Intercontinental Exchange, Inc. (NYSE:ICE) to $172 from $154 and kept a Buy rating on the shares.
Among the 867 hedge funds monitored by Insider Monkey’s third quarter database, William Von Mueffling’s Cantillon Capital Management is the largest stakeholder of Intercontinental Exchange, Inc. (NYSE:ICE), with 4.1 million shares worth $474.7 million. Overall, 48 funds were bullish on the stock in Q3.
Here is what Oakmark Funds has to say about Intercontinental Exchange, Inc. (NYSE:ICE) in its Q2 2021 investor letter:
“Intercontinental Exchange is one of the largest and, in our view, most successful financial exchange operators in the world. The company was created through a series of shrewd acquisitions executed by their founder and CEO Jeff Sprecher. Sprecher is one of the more capable CEOs we’ve evaluated, having demonstrated a long history of astute capital allocation and a willingness to act and adapt rapidly to new opportunities and competitive threats. Today, Intercontinental Exchange competes in three primary business segments: exchanges, fixed income/data services and mortgage technology. We believe each of these businesses exhibits attractive economic characteristics and that each should grow earnings well in excess of GDP over the long term. Despite this favorable long-term outlook, the company currently trades at a P/E ratio that is roughly in line with the S&P 500. We believe a business with Intercontinental Exchange’s strong competitive position, excellent management team and attractive growth outlook deserves to trade well above a market multiple. We like buying great businesses at average prices and believe Intercontinental Exchange represents a compelling opportunity to do just that.”
7. Discover Financial Services (NYSE:DFS)
Arrowstreet Capital’s Stake Value: $243,906,000
Stock performance over the past 12 months through November 25: -5%
Arrowstreet Capital elevated its position in Discover Financial Services (NYSE:DFS) by 190% during Q3 2021, holding a total of 1.98 million shares of the company, worth $243.9 million, representing 0.30% of the fund’s 13F securities for the period.
Seaport Global analyst Bill Ryan on November 2 upgraded Discover Financial Services (NYSE:DFS) to Buy from Neutral with a $138 price target, noting that its shares and those of most other card issuers stocks have sold off since Q3 earnings based on concerns of credit normalization, competition, and future investments.
6. Mastercard Incorporated (NYSE:MA)
Arrowstreet Capital’s Stake Value: $349,531,000
Stock performance over the past 12 months through November 25: +8%
Mastercard Incorporated (NYSE:MA), an American multinational financial services corporation offering credit cards and payment systems, is one of the top finance stocks to buy according to Arrowstreet Capital. The hedge fund boosted its stake in Mastercard Incorporated (NYSE:MA) by 347% in the third quarter, holding more than 1 million shares of the company, worth $349.5 million, representing 0.43% of the total Q3 investments.
Mizuho analyst Dan Dolev lowered the price target on Mastercard Incorporated (NYSE:MA) to $400 from $465 and kept a Buy rating on the shares on January 7.
Here is what Polen Capital has to say about Mastercard Incorporated (NYSE:MA) in its Q3 2021 investor letter:
“Mastercard faced pressure as some believe these “old payment infrastructure” businesses will be disrupted by newer fintech companies using blockchain, buy now, pay later (BNPL), or other innovations to provide better/cheaper payment services. However, we believe that some of these technologies have meaningful limitations which could benefit existing payment networks. For example, BNPL transactions are often funded with cards and turn a one-time transaction into many smaller ones with more transaction fees for Mastercard. Just like with regulation, we continually monitor for competition and technological disruption. As of now, we do not see a significant risk in the foreseeable future to this company.”
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Disclosure: None. Was Arrowstreet Capital Right About These 10 Finance Stocks? is originally published on Insider Monkey.
