Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Morningstar, Inc. (NASDAQ:MORN) .
Is Morningstar, Inc. (NASDAQ:MORN) going to take off soon? Hedge funds are turning bullish. The number of bullish hedge fund bets that are revealed through the 13F filings rose by 3 recently. MORN was in 15 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with MORN positions at the end of the previous quarter. At the end of this article we will also compare MORN to other stocks including Oshkosh Corporation (NYSE:OSK), Lancaster Colony Corp. (NASDAQ:LANC), and National Instruments Corp (NASDAQ:NATI) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
What does the smart money think about Morningstar, Inc. (NASDAQ:MORN)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a rise of 25% from the second quarter of 2016. On the other hand, there were a total of 12 hedge funds with a bullish position in MORN at the beginning of this year. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the number one position in Morningstar, Inc. (NASDAQ:MORN), worth close to $78.4 million. Sitting at the No. 2 spot is Jim Simons’ Renaissance Technologies, with a $49 million position. Some other professional money managers that hold long positions comprise William Crowley, William Harker, and Stephen Blass’ Ashe Capital, Cliff Asness’ AQR Capital Management and Israel Englander’s Millennium Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As one would reasonably expect, some big names have been driving this bullishness. Two Sigma Advisors, led by John Overdeck and David Siegel, initiated the biggest position in Morningstar, Inc. (NASDAQ:MORN). Two Sigma Advisors had $0.7 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $0.3 million position during the quarter. One more fund with brand new MORN position is Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Morningstar, Inc. (NASDAQ:MORN) but similarly valued. These stocks are Oshkosh Corporation (NYSE:OSK), Lancaster Colony Corp. (NASDAQ:LANC), National Instruments Corp (NASDAQ:NATI), and PrivateBancorp Inc (NASDAQ:PVTB). All of these stocks’ market caps are similar to MORN’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $360 million. That figure was $188 million in MORN’s case. Oshkosh Corporation (NYSE:OSK) is the most popular stock in this table. On the other hand Lancaster Colony Corp. (NASDAQ:LANC) is the least popular one with only 14 bullish hedge fund positions. Morningstar, Inc. (NASDAQ:MORN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard OSK might be a better candidate to consider taking a long position in.