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Hedge Funds Are Getting Bullish On Marsh & McLennan Companies, Inc. (MMC)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Marsh & McLennan Companies, Inc. (NYSE:MMC) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is Marsh & McLennan Companies, Inc. (NYSE:MMC) a cheap investment now? Prominent investors were taking a bullish view. The number of bullish hedge fund positions moved up by 1 recently. Marsh & McLennan Companies, Inc. (NYSE:MMC) was in 38 hedge funds’ portfolios at the end of June. The all time high for this statistics is 38. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MMC 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). There were 37 hedge funds in our database with MMC positions at the end of the first quarter.

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

Today there are a large number of gauges market participants use to assess their stock investments. Some of the most useful gauges are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the top fund managers can trounce the broader indices by a solid amount (see the details here).

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind let’s check out the key hedge fund action regarding Marsh & McLennan Companies, Inc. (NYSE:MMC).

What does smart money think about Marsh & McLennan Companies, Inc. (NYSE:MMC)?

At the end of June, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MMC over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the largest position in Marsh & McLennan Companies, Inc. (NYSE:MMC). Diamond Hill Capital has a $175.2 million position in the stock, comprising 1% of its 13F portfolio. Sitting at the No. 2 spot is Brian Ashford-Russell and Tim Woolley of Polar Capital, with a $155.2 million position; the fund has 1.3% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism consist of Tom Gayner’s Markel Gayner Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Greg Poole’s Echo Street Capital Management. In terms of the portfolio weights assigned to each position Bishop Rock Capital allocated the biggest weight to Marsh & McLennan Companies, Inc. (NYSE:MMC), around 5.64% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, earmarking 5.09 percent of its 13F equity portfolio to MMC.

As aggregate interest increased, specific money managers were leading the bulls’ herd. Gillson Capital, managed by Daniel Johnson, created the biggest position in Marsh & McLennan Companies, Inc. (NYSE:MMC). Gillson Capital had $28.4 million invested in the company at the end of the quarter. Munir Javeri’s 3G Sahana Capital Management also made a $25.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Renaissance Technologies, John D. Gillespie’s Prospector Partners, and Seth Cogswell’s Running Oak Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Marsh & McLennan Companies, Inc. (NYSE:MMC) but similarly valued. These stocks are Uber Technologies, Inc. (NYSE:UBER), Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), CSX Corporation (NASDAQ:CSX), Air Products & Chemicals, Inc. (NYSE:APD), Vale SA (NYSE:VALE), The Sherwin-Williams Company (NYSE:SHW), and Autodesk, Inc. (NASDAQ:ADSK). This group of stocks’ market values resemble MMC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UBER 94 5388672 -3
PBR 29 1409778 -3
CSX 46 2290942 -11
APD 37 439684 -4
VALE 29 1613921 1
SHW 53 1830766 -4
ADSK 67 3014972 2
Average 50.7 2284105 -3.1

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 $2284 million. That figure was $847 million in MMC’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) is the least popular one with only 29 bullish hedge fund positions. Marsh & McLennan Companies, Inc. (NYSE:MMC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MMC is 42.9. 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 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately MMC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MMC investors were disappointed as the stock returned 7.5% since Q2 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.