Were Hedge Funds Right About S&P Global Inc. (SPGI)?

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 900 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 S&P Global Inc. (NYSE:SPGI).

Is S&P Global Inc. (NYSE:SPGI) the right investment to pursue these days? Money managers were in a pessimistic mood. The number of bullish hedge fund bets fell by 9 recently. S&P Global Inc. (NYSE:SPGI) was in 66 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 76. Our calculations also showed that SPGI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Chris Hohn of TCI Fund Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 homepage. Now we’re going to take a gander at the new hedge fund action encompassing S&P Global Inc. (NYSE:SPGI).

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

At first quarter’s end, a total of 66 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SPGI over the last 23 quarters. 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, TCI Fund Management held the most valuable stake in S&P Global Inc. (NYSE:SPGI), which was worth $2065.5 million at the end of the fourth quarter. On the second spot was Cantillon Capital Management which amassed $845.7 million worth of shares. Valley Forge Capital, Third Point, and Citadel Investment Group 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 Rings Capital Management allocated the biggest weight to S&P Global Inc. (NYSE:SPGI), around 43.85% of its 13F portfolio. Valley Forge Capital is also relatively very bullish on the stock, designating 21.24 percent of its 13F equity portfolio to SPGI.

Due to the fact that S&P Global Inc. (NYSE:SPGI) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedge funds who sold off their entire stakes heading into Q2. At the top of the heap, Gabriel Plotkin’s Melvin Capital Management said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, totaling an estimated $147.9 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $76.7 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 9 funds heading into Q2.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as S&P Global Inc. (NYSE:SPGI) but similarly valued. We will take a look at Coupang, Inc. (NYSE:CPNG), Cigna Corporation (NYSE:CI), U.S. Bancorp (NYSE:USB), General Motors Company (NYSE:GM), Mondelez International Inc (NASDAQ:MDLZ), BP plc (NYSE:BP), and Canadian National Railway Company (NYSE:CNI). This group of stocks’ market valuations resemble SPGI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 47.4 hedge funds with bullish positions and the average amount invested in these stocks was $7050 million. That figure was $6245 million in SPGI’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand BP plc (NYSE:BP) is the least popular one with only 29 bullish hedge fund positions. S&P Global Inc. (NYSE:SPGI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SPGI is 54.5. 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 gained 25.8% in 2021 through August 6th and still beat the market by 6.7 percentage points. Hedge funds were also right about betting on SPGI as the stock returned 25.4% since the end of Q1 (through 8/6) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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