Was The Smart Money Right About Morgan Stanley (MS)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Morgan Stanley (NYSE:MS)? The smart money sentiment can provide an answer to this question.

Is Morgan Stanley (NYSE:MS) an exceptional investment right now? Prominent investors were becoming less hopeful. The number of bullish hedge fund positions fell by 4 in recent months. Morgan Stanley (NYSE:MS) was in 66 hedge funds’ portfolios at the end of December. The all time high for this statistic is 70. Our calculations also showed that MS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Jeffrey Altman of Owl Creek Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a look at the new hedge fund action surrounding Morgan Stanley (NYSE:MS).

Do Hedge Funds Think MS Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 66 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MS over the last 22 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Morgan Stanley (NYSE:MS) was held by Eagle Capital Management, which reported holding $894.3 million worth of stock at the end of December. It was followed by Greenhaven Associates with a $653.8 million position. Other investors bullish on the company included Fisher Asset Management, ValueAct Capital, and GQG Partners. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to Morgan Stanley (NYSE:MS), around 12.31% of its 13F portfolio. Strycker View Capital is also relatively very bullish on the stock, earmarking 7.22 percent of its 13F equity portfolio to MS.

Judging by the fact that Morgan Stanley (NYSE:MS) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedge funds that elected to cut their full holdings heading into Q1. It’s worth mentioning that Emanuel J. Friedman’s EJF Capital sold off the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling close to $29 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $23.7 million worth. These moves are important to note, as total hedge fund interest fell by 4 funds heading into Q1.

Let’s now take a look at hedge fund activity in other stocks similar to Morgan Stanley (NYSE:MS). We will take a look at Sanofi (NASDAQ:SNY), The Boeing Company (NYSE:BA), Lowe’s Companies, Inc. (NYSE:LOW), China Mobile Limited (NYSE:CHL), Royal Bank of Canada (NYSE:RY), International Business Machines Corp. (NYSE:IBM), and Advanced Micro Devices, Inc. (NASDAQ:AMD). This group of stocks’ market valuations are similar to MS’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.4 hedge funds with bullish positions and the average amount invested in these stocks was $2219 million. That figure was $5665 million in MS’s case. Advanced Micro Devices, Inc. (NASDAQ:AMD) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 13 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. Our overall hedge fund sentiment score for MS is 72.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on MS as the stock returned 17.4% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.