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Hedge Funds’ #9 Stock Pick Debunked Naysayers

“I have been following Dr. Inan Dogan since this outbreak, and he is  a phenomenally intelligent researcher. One month ago, Dr. Dogan’s prediction that the total U.S. death toll would be 20,000+ by April 15th was deemed “radical”. His Recession is Imminent article in February was very timely. Now he believes we could quickly end lockdowns in NYC after some simple testing. A must read” were the words used by our readers to describe our latest article.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going even though the mainstream financial media journalists don’t agree with this approach. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Mastercard Incorporated (NYSE:MA).

Mastercard Incorporated (NYSE:MA) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 125 hedge funds’ portfolios at the end of December. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Exxon Mobil Corporation (NYSE:XOM), AT&T Inc. (NYSE:T), and UnitedHealth Group Inc. (NYSE:UNH) to gather more data points. Our calculations also showed that MA ranked 9th 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).

If you listen to the mainstream financial media, you should avoid stock picking and invest in low-cost index funds. This is indeed what you should do if you want to generate average returns. Mainstream financial media journalists try to make you believe that it isn’t possible to pick winners and losers, and you should ignore the stock picks of hedge fund managers. You may remember reading an article in the WSJ that said “random dart throwing monkeys beat hedge fund stars”. What they fail to tell you is that the top 5 hedge fund stocks returned more than 30% since the end of 2018 and beat the S&P 500 Index by nearly 25 percentage points. You can’t explain this kind of outperformance by luck or coincidence. WSJ will need an army of monkeys to throw darts and tens of thousands of attempts to match these returns.

hedge funds vs. mutual funds

Warren Buffett of Berkshire Hathaway

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. Now we’re going to view the recent hedge fund action encompassing Mastercard Incorporated (NYSE:MA).

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

Heading into the first quarter of 2020, a total of 125 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. On the other hand, there were a total of 96 hedge funds with a bullish position in MA a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Among these funds, Gardner Russo & Gardner held the most valuable stake in Mastercard Incorporated (NYSE:MA), which was worth $1905.1 million at the end of the third quarter. On the second spot was Akre Capital Management which amassed $1590.5 million worth of shares. Berkshire Hathaway, Arrowstreet Capital, and GQG Partners 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 KG Funds Management allocated the biggest weight to Mastercard Incorporated (NYSE:MA), around 16.24% of its 13F portfolio. Gardner Russo & Gardner is also relatively very bullish on the stock, designating 14.61 percent of its 13F equity portfolio to MA.

Due to the fact that Mastercard Incorporated (NYSE:MA) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedge funds who were dropping their positions entirely by the end of the third quarter. It’s worth mentioning that Glen Kacher’s Light Street Capital cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, totaling close to $42.1 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund sold off about $32.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Mastercard Incorporated (NYSE:MA). These stocks are Exxon Mobil Corporation (NYSE:XOM), AT&T Inc. (NYSE:T), UnitedHealth Group Inc. (NYSE:UNH), and The Walt Disney Company (NYSE:DIS). This group of stocks’ market values are similar to MA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
XOM 63 2028251 8
T 50 1406918 -1
UNH 91 7896286 3
DIS 118 4968497 3
Average 80.5 4074988 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 80.5 hedge funds with bullish positions and the average amount invested in these stocks was $4075 million. That figure was $14561 million in MA’s case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 50 bullish hedge fund positions. Compared to these stocks Mastercard Incorporated (NYSE:MA) is more popular among hedge funds. 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 lost 1.0% in 2020 through April 20th and still beat the market by 11 percentage points. Unfortunately MA wasn’t nearly as successful as these 10 stocks and hedge funds that were betting on MA were disappointed as the stock returned -15.5% during the three months of 2020 (through April 20th) and underperformed the market. However, this was only a short term stumble. Mastercard shares returned 34.5% gains since the end of 2018 and outperformed the dumb index funds by 29 percentage points. That’s what we call great long-term performance.
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.

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