How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Microsoft Corporation (NASDAQ:MSFT) and determine whether hedge funds had an edge regarding this stock.
Microsoft Corporation (NASDAQ:MSFT) was in 250 hedge funds’ portfolios at the end of September. The all time high for this statistic is 258. MSFT has experienced an increase in hedge fund sentiment of late. There were 238 hedge funds in our database with MSFT holdings at the end of June. Our calculations also showed that MSFT ranked #1 among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to review the latest hedge fund action regarding Microsoft Corporation (NASDAQ:MSFT).
Chris Hohn of TCI Fund Management
Do Hedge Funds Think MSFT Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 250 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 234 hedge funds with a bullish position in MSFT a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fisher Asset Management held the most valuable stake in Microsoft Corporation (NASDAQ:MSFT), which was worth $7195.9 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $5066.5 million worth of shares. TCI Fund Management, Citadel Investment Group, and Tiger Global Management LLC were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Joho Capital allocated the biggest weight to Microsoft Corporation (NASDAQ:MSFT), around 27.2% of its 13F portfolio. Skye Global Management is also relatively very bullish on the stock, dishing out 26.62 percent of its 13F equity portfolio to MSFT.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Bill & Melinda Gates Foundation Trust, managed by Michael Larson, initiated the most valuable position in Microsoft Corporation (NASDAQ:MSFT). Bill & Melinda Gates Foundation Trust had $828.2 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also initiated a $710.4 million position during the quarter. The other funds with brand new MSFT positions are Chris Rokos’s Rokos Capital Management, Philippe Laffont’s Coatue Management, and D. E. Shaw’s D E Shaw.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Microsoft Corporation (NASDAQ:MSFT) but similarly valued. We will take a look at Alphabet Inc (NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), Meta Platforms, Inc. (NASDAQ:FB), Tesla Inc. (NASDAQ:TSLA), Berkshire Hathaway Inc. (NYSE:BRK-B), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), and NVIDIA Corporation (NASDAQ:NVDA). All of these stocks’ market caps are similar to MSFT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GOOGL | 195 | 28555087 | 5 |
| AMZN | 242 | 42553102 | -29 |
| FB | 248 | 38569582 | -18 |
| TSLA | 60 | 10645154 | 0 |
| BRK-B | 106 | 19463815 | -10 |
| TSM | 67 | 9511459 | 3 |
| NVDA | 83 | 10050216 | -3 |
| Average | 143 | 22764059 | -7.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 143 hedge funds with bullish positions and the average amount invested in these stocks was $22764 million. That figure was $65878 million in MSFT’s case. Meta Platforms, Inc. (NASDAQ:FB) is the most popular stock in this table. On the other hand Tesla Inc. (NASDAQ:TSLA) is the least popular one with only 60 bullish hedge fund positions. Compared to these stocks Microsoft Corporation (NASDAQ:MSFT) is more popular among hedge funds. Our overall hedge fund sentiment score for MSFT is 99.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on MSFT as the stock returned 10.5% since the end of September (through 1/31) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
