Insider Monkey has processed numerous 13F filings of hedge funds and successful 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 first quarter. You can find write-ups 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 and analyze what the smart money thinks of Microsoft Corporation (NASDAQ:MSFT).
Our calculations revealed that Microsoft Corporation (NASDAQ:MSFT) is the second most popular stock among hedge funds (see the entire list of 30 most popular stocks among hedge funds). We are going to compare Microsoft’s hedge fund sentiment against a group of similarly valued stocks below and determine whether hedge funds were right about backing Microsoft.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
We’re going to take a glance at the fresh hedge fund action surrounding Microsoft Corporation (NASDAQ:MSFT).
What have hedge funds been doing with Microsoft Corporation (NASDAQ:MSFT)?
At Q1’s end, a total of 170 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from one quarter earlier. By comparison, 152 hedge funds held shares or bullish call options in MSFT a year ago. Overall hedge fund sentiment towards MSFT is still near its all time high. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Eagle Capital Management was the largest shareholder of Microsoft Corporation (NASDAQ:MSFT), with a stake worth $2224.8 million reported as of the end of March. Trailing Eagle Capital Management was AQR Capital Management, which amassed a stake valued at $2105.9 million. Fisher Asset Management, Tiger Global Management LLC, and Egerton Capital Limited were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Microsoft Corporation (NASDAQ:MSFT) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of fund managers who were dropping their positions entirely heading into Q3. At the top of the heap, Ricky Sandler’s Eminence Capital said goodbye to the biggest investment of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $168.6 million in stock, and Richard Chilton’s Chilton Investment Company was right behind this move, as the fund dropped about $134.9 million worth. These moves are interesting, as aggregate hedge fund interest fell by 4 funds heading into Q3.
Let’s now review hedge fund activity in other stocks similar to Microsoft Corporation (NASDAQ:MSFT). 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 caps are closest to MSFT’s market cap.
|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 136 hedge funds with bullish positions and the average amount invested in these stocks was $24804 million. That figure was $24799 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 98 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on MSFT as the stock returned 7% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.