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Hedge Funds Are Dumping MSCI Inc (MSCI)

In this article we will check out the progression of hedge fund sentiment towards MSCI Inc (NYSE:MSCI) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

MSCI Inc (NYSE:MSCI) investors should be aware of a decrease in enthusiasm from smart money in recent months. MSCI was in 29 hedge funds’ portfolios at the end of the first quarter of 2020. There were 42 hedge funds in our database with MSCI positions at the end of the previous quarter. Our calculations also showed that MSCI isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the new hedge fund action regarding MSCI Inc (NYSE:MSCI).

What have hedge funds been doing with MSCI Inc (NYSE:MSCI)?

At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -31% from the fourth quarter of 2019. By comparison, 36 hedge funds held shares or bullish call options in MSCI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of MSCI Inc (NYSE:MSCI), with a stake worth $135 million reported as of the end of September. Trailing Renaissance Technologies was SCGE Management, which amassed a stake valued at $118.5 million. Fisher Asset Management, Two Sigma Advisors, and Markel Gayner Asset Management 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 Kylin Management allocated the biggest weight to MSCI Inc (NYSE:MSCI), around 9.18% of its 13F portfolio. Totem Point Management is also relatively very bullish on the stock, dishing out 6.34 percent of its 13F equity portfolio to MSCI.

Judging by the fact that MSCI Inc (NYSE:MSCI) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of hedgies who were dropping their entire stakes in the first quarter. It’s worth mentioning that Noam Gottesman’s GLG Partners said goodbye to the largest position of the 750 funds followed by Insider Monkey, valued at an estimated $61 million in stock. Israel Englander’s fund, Millennium Management, also said goodbye to its stock, about $36.6 million worth. These transactions are interesting, as total hedge fund interest fell by 13 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as MSCI Inc (NYSE:MSCI) but similarly valued. We will take a look at Manulife Financial Corporation (NYSE:MFC), Marriott International Inc (NASDAQ:MAR), Mercadolibre Inc (NASDAQ:MELI), and Suncor Energy Inc. (NYSE:SU). All of these stocks’ market caps are closest to MSCI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MFC 20 139150 1
MAR 47 1553974 10
MELI 60 2099088 8
SU 30 766498 -9
Average 39.25 1139678 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.25 hedge funds with bullish positions and the average amount invested in these stocks was $1140 million. That figure was $639 million in MSCI’s case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Manulife Financial Corporation (NYSE:MFC) is the least popular one with only 20 bullish hedge fund positions. MSCI Inc (NYSE:MSCI) 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. 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately MSCI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MSCI investors were disappointed as the stock returned 14% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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