We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Moody’s Corporation (NYSE:MCO).
Moody’s Corporation (NYSE:MCO) has experienced a decrease in hedge fund sentiment of late. Our calculations also showed that MCO 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).
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Bruce Kovner of Caxton Associates LP
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. 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. Keeping this in mind let’s take a gander at the fresh hedge fund action regarding Moody’s Corporation (NYSE:MCO).
What does smart money think about Moody’s Corporation (NYSE:MCO)?
At Q4’s end, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in MCO a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Moody’s Corporation (NYSE:MCO) was held by Berkshire Hathaway, which reported holding $5856.9 million worth of stock at the end of September. It was followed by Akre Capital Management with a $1348.9 million position. Other investors bullish on the company included Windacre Partnership, AltaRock Partners, and Triple Frond Partners. In terms of the portfolio weights assigned to each position Rings Capital Management allocated the biggest weight to Moody’s Corporation (NYSE:MCO), around 38.17% of its 13F portfolio. Valley Forge Capital is also relatively very bullish on the stock, designating 20.76 percent of its 13F equity portfolio to MCO.
Seeing as Moody’s Corporation (NYSE:MCO) has experienced a decline in interest from the smart money, we can see that there lies a certain “tier” of hedgies that elected to cut their positions entirely by the end of the third quarter. Interestingly, Nicolai Tangen’s Ako Capital dumped the biggest stake of all the hedgies monitored by Insider Monkey, totaling about $93.8 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund cut about $9.5 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 6 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Moody’s Corporation (NYSE:MCO). We will take a look at American International Group Inc (NYSE:AIG), Exelon Corporation (NASDAQ:EXC), Pinduoduo Inc. (NASDAQ:PDD), and Koninklijke Philips NV (NYSE:PHG). This group of stocks’ market values resemble MCO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AIG | 52 | 2870459 | -1 |
| EXC | 36 | 1822287 | -2 |
| PDD | 32 | 1682011 | 1 |
| PHG | 9 | 179950 | 1 |
| Average | 32.25 | 1638677 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1639 million. That figure was $9218 million in MCO’s case. American International Group Inc (NYSE:AIG) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 9 bullish hedge fund positions. Moody’s Corporation (NYSE:MCO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on MCO as the stock returned 2.1% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
