Microsoft Corporation (NASDAQ:MSFT)‘s CEO, Satya Nadella informed employees of the company via e-mail that more job cuts would be undertaken, primarily in the company’s phone business. According to Nadella’s e-mail, Microsoft Corporation (NASDAQ:MSFT) will be cutting 7,800 jobs in addition to taking on an impairment charge of around $7.6 billion and a restructuring charge of around $750 – $850 million related to its acquisition of Nokia’s Devices and Services unit. This move from Nadella echoes his interest in creating a windows ecosystem, by moving away from the strategy of a stand-alone phone business. In the last few weeks former CEO of Nokia, Stephen Elop, and head of phones, Jo Harlow both decided to part ways with Microsoft Corporation (NASDAQ:MSFT). The latest round of announced job cuts are in addition to the 18,000 job cuts Nadella announced almost a year ago shortly after taking the helm at Microsoft Corporation (NASDAQ:MSFT), with the majority of those having been completed. Microsoft, which is one of the biggest software companies in the World, has dropped by 8% since the beginning of May, though it is up by over 0.50% in trading today.
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While hedge funds remain big supporters of Microsoft, they aren’t exactly enamored with the state of the company’s business or its prospects for growth under Nadella at the current moment. At the end of the first quarter, a total of 110 of the hedge funds tracked by Insider Monkey were long in Microsoft Corporation (NASDAQ:MSFT), with a total investment of $16.12 billion in it. However, there were 114 hedge funds with approximately 10% more capital investment in the stock at the end of 2014. Considering the fact that during the first three months of this year, the stock had lost more than 12% of its value, we can however say that hedge funds were not pulling money from the stock.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 80 percentage points since the end of August 2012 when this system went live, returning a cumulative 135% vs. less than 55% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at the insider activity on Microsoft Corporation (NASDAQ:MSFT) stock, there were some insider purchase and sales of shares filed during the first half of this year. Director at Microsoft Corporation, Mason Morfit purchased around 1.03 million shares in February. But former CEO and Co-Founder of Microsoft, Bill Gates has sold around 16 million shares in multiple transactions during the first half of this year.
Keeping this in mind, let’s check out the key hedge fund activity on Microsoft Corporation (NASDAQ:MSFT).
What have hedge funds been doing with Microsoft Corporation (NASDAQ:MSFT)?
According to Insider Monkey’s database, ValueAct Capital, managed by Jeffrey Ubben, holds the biggest position in Microsoft Corporation (NASDAQ:MSFT). ValueAct Capital holds around 75.3 million shares valued at $3.06 billion as of the end of March, comprising 16.9% of its 13F portfolio. Sitting in the second spot is Eagle Capital Management, managed by Boykin Curry, which held around 34.4 million shares; 4.8% of its 13F portfolio was allocated to the company. Other hedgies with similar optimism contain Donald Yacktman’s Yacktman Asset Management, Ken Fisher‘s Fisher Asset Management, and Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC.
As the number of hedge funds with positions in the stock was reduced by four during the first three months of this year, this indicates that some hedge funds said good bye to their entire holdings of Microsoft during the period. At the top of the heap, Christopher Medlock James’ Partner Fund Management cut the largest investment of all the hedgies tracked by Insider Monkey. Partner Fund Management sold all of its 5.6 million shares during the first three months of the year. Michael Messner’s fund, Seminole Capital also sold all of its 3.1 million shares.
Looking at the hedge fund activity on Microsoft Corporation, it was slightly bearish, though that is offset by a notable insider purchase. With shares trending downward and no one quite certain how the future will shape the gargantuan company and where it will focus its resources, it’s difficult to recommend a purchase at this time.
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