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Hedge Funds Are Cashing Out Of S&P Global Inc. (SPGI)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of S&P Global Inc. (NYSE:SPGI) based on that data and determine whether they were really smart about the stock.

S&P Global Inc. (NYSE:SPGI) shareholders have witnessed a decrease in hedge fund sentiment in recent months. S&P Global Inc. (NYSE:SPGI) was in 71 hedge funds’ portfolios at the end of June. The all time high for this statistics is 76. There were 73 hedge funds in our database with SPGI positions at the end of the previous quarter. Our calculations also showed that SPGI isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Andrew Sandler of Sandler Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a peek at the new hedge fund action encompassing S&P Global Inc. (NYSE:SPGI).

How are hedge funds trading S&P Global Inc. (NYSE:SPGI)?

At the end of the second quarter, a total of 71 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards SPGI over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cantillon Capital Management, managed by William von Mueffling, holds the biggest position in S&P Global Inc. (NYSE:SPGI). Cantillon Capital Management has a $869.5 million position in the stock, comprising 7.6% of its 13F portfolio. On Cantillon Capital Management’s heels is Dan Loeb of Third Point, with a $255.3 million position; 3.5% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish include Dev Kantesaria’s Valley Forge Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Noam Gottesman’s GLG Partners. 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 46.56% of its 13F portfolio. Valley Forge Capital is also relatively very bullish on the stock, designating 21.93 percent of its 13F equity portfolio to SPGI.

Judging by the fact that S&P Global Inc. (NYSE:SPGI) has faced a decline in interest from the smart money, it’s easy to see that there lies a certain “tier” of money managers who sold off their full holdings last quarter. Intriguingly, John Armitage’s Egerton Capital Limited cut the largest position of all the hedgies monitored by Insider Monkey, worth close to $123.8 million in stock, and James Parsons’s Junto Capital Management was right behind this move, as the fund cut about $48.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds last quarter.

Let’s also examine 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 BP plc (NYSE:BP), Diageo plc (NYSE:DEO), Intuit Inc. (NASDAQ:INTU), ServiceNow Inc (NYSE:NOW), American Express Company (NYSE:AXP), Morgan Stanley (NYSE:MS), and Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). All of these stocks’ market caps are similar to SPGI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BP 27 736756 -4
DEO 20 653839 3
INTU 53 1735265 -1
NOW 86 4949673 1
AXP 54 17635296 -3
MS 61 4357171 -9
VRTX 54 3477688 -2
Average 50.7 4792241 -2.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.7 hedge funds with bullish positions and the average amount invested in these stocks was $4792 million. That figure was $3025 million in SPGI’s case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 20 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 69.7. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately SPGI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SPGI were disappointed as the stock returned 9.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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