Is Microsoft Corporation (NASDAQ:MSFT) a good stock to buy 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.
Is Microsoft Corporation (NASDAQ:MSFT) the right pick for your portfolio? The best stock pickers are turning bullish. The number of bullish hedge fund bets rose by 6 recently. Our calculations also showed that MSFT ranked #2 among the 30 most popular stocks among hedge funds (see the video below for previous rankings).
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Let’s take a glance at the new hedge fund action regarding Microsoft Corporation (NASDAQ:MSFT).
How have hedgies been trading Microsoft Corporation (NASDAQ:MSFT)?
At the end of the third quarter, a total of 173 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. By comparison, 170 hedge funds held shares or bullish call options in MSFT a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Microsoft Corporation (NASDAQ:MSFT) was held by Fisher Asset Management, which reported holding $2969.5 million worth of stock at the end of March. It was followed by Eagle Capital Management with a $2625.1 million position. Other investors bullish on the company included Tiger Global Management, AQR Capital Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Joho Capital allocated the biggest weight to Microsoft Corporation (NASDAQ:MSFT), around 21.9% of its portfolio. Duquesne Capital is also relatively very bullish on the stock, setting aside 21.6 percent of its 13F equity portfolio to MSFT.
As aggregate interest increased, specific money managers were leading the bulls’ herd. Cryder Capital, managed by Ferdinand Groos, initiated the most outsized position in Microsoft Corporation (MSFT). Cryder Capital had $90.2 million invested in the company at the end of the quarter. Michael Sidhom’s Immersion Capital also initiated a $84.1 million position during the quarter. The following funds were also among the new MSFT investors: David Fiszel’s Honeycomb Asset Management, Gregg Moskowitz’s Interval Partners, and Joseph Samuels’ Islet Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Microsoft Corporation (NASDAQ:MSFT) but similarly valued. We will take a look at Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), and Alphabet Inc (NASDAQ:GOOG). This group of stocks’ market valuations are closest to MSFT’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 140.5 hedge funds with bullish positions and the average amount invested in these stocks was $28921 million. That figure was $26910 million in MSFT’s case. Amazon.com, Inc. (NASDAQ:AMZN) is the most popular stock in this table. On the other hand Apple Inc. (NASDAQ:AAPL) is the least popular one with only 111 bullish hedge fund positions. Compared to these stocks Microsoft Corporation (NASDAQ:MSFT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on MSFT, though not to the same extent, as the stock returned 8% during the fourth quarter (through 11/22) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.