Hedge Fund Hotels in 2020: Mastercard (MA) vs. Market Cap Peers

Hedge funds started to disclose their holdings at the end of 2019 in new 13F filings. They have 45 days from the end of each quarter to disclose their positions in publicly traded US stocks, options, and convertible debt. Insider Monkey tracks more than 750 hedge funds and usually more than half of these hedge funds will wait until the last day to file their 13Fs with the SEC. Fortunately, our experience shows that aggregate hedge fund sentiment towards most stocks don’t change much. In this article we are going to take a look at how hedge funds have been feeling about a stock like Mastercard Inc and compare its performance against similarly valued stocks like Bank of America Corporation (NYSE:BAC), The Home Depot, Inc. (NYSE:HD), Verizon Communications Inc. (NYSE:VZ), and Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).

Is Mastercard Incorporated (NYSE:MA) an outstanding investment today? The best stock pickers are in a bullish mood. The number of long hedge fund bets increased by 15 in Q3. Our calculations also showed that MA is among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that historically hedge funds’ stock picks outperformed the market by a large margin. That’s why hedge fund industry became a $3 trillion industry. However,  you can’t outperform the market by replicating the entire portfolio of an average hedge fund anymore. Luckily Insider Monkey came up with proprietary algorithms to identify the best stock picks of the best hedge fund managers. We have been sharing a portfolio of around 15 hand picked stocks in our monthly newsletter since March 2017 and generated a cumulative return of 87% vs. 47.7% S&P 500 ETFs during the same period (see the details here).

We leave no stone unturned when looking for the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap trading at an enterprise value/operating profit ratio of 1 (this isn’t a typo). In January, we recommended a position in a dividend stock with a PE ratio of less than 7 that is growing its earnings and yields 11%. Keeping this in mind let’s view the latest hedge fund action encompassing Mastercard Incorporated (NYSE:MA).

Warren Buffett

How have hedgies been trading Mastercard Incorporated (NYSE:MA)?

At Q3’s end, a total of 114 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MA over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Mastercard Hedge Fund Sentiment

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Tom Russo’s Gardner Russo & Gardner has the largest position in Mastercard Incorporated (NYSE:MA), worth close to $1.812 billion, accounting for 14.1% of its total 13F portfolio. The second largest stake is held by Akre Capital Management, led by Charles Akre, holding a $1.4467 billion position; 14.3% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions contain Warren Buffett’s Berkshire Hathaway, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Rajiv Jain’s GQG Partners. In terms of the portfolio weights assigned to each position KG Funds Management allocated the biggest weight to Mastercard Incorporated (NYSE:MA), around 17.52% of its 13F portfolio. Akre Capital Management is also relatively very bullish on the stock, earmarking 14.26 percent of its 13F equity portfolio to MA.

Now, specific money managers have jumped into Mastercard Incorporated (NYSE:MA) headfirst. Light Street Capital, managed by Glen Kacher, assembled the biggest position in Mastercard Incorporated (NYSE:MA). Light Street Capital had $42.1 million invested in the company at the end of the quarter. Discovery Capital Management also made a $19.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Bernard Selz’s Selz Capital, and Leon Shaulov’s Maplelane Capital.

Let’s now review hedge fund activity in other stocks similar to Mastercard Incorporated (NYSE:MA). These stocks are Bank of America Corporation (NYSE:BAC), The Home Depot, Inc. (NYSE:HD), Verizon Communications Inc. (NYSE:VZ), and Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM). All of these stocks’ market caps resemble MA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BAC 95 32049756 1
HD 60 4349926 7
VZ 56 2373783 2
TSM 52 5161771 10
Average 65.75 10983809 5

View table here if you experience formatting issues.

As you can see these stocks had an average of 65.75 hedge funds with bullish positions and the average amount invested in these stocks was $10984 million. That figure was $13207 million in MA’s case. Bank of America Corporation (NYSE:BAC) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 52 bullish hedge fund positions. Compared to these stocks Mastercard Incorporated (NYSE:MA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. This 20-stock portfolio also returned 4.5% so far in 2020 and beat the market by an additional 3 percentage points. Hedge funds were also right about betting on MA as the stock returned 7.4% so far in 2020 and outperformed the market by an even larger margin. Bank of America, Verizon, and Taiwan Semi all had negative returns year-to-date, whereas HD gained slightly less than Mastercard.
5 Most Popular Stocks Among Hedge Funds
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.