How Did Mastercard Incorporated (NYSE:MA) Compare Against Top Hedge Fund Stocks in 2019?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Mastercard Incorporated (NYSE:MA) and see how the stock performed in comparison to hedge funds’ consensus picks.

Mastercard Incorporated (NYSE:MA) shareholders have witnessed an increase in hedge fund sentiment of late. MA was in 114 hedge funds’ portfolios at the end of September. There were 99 hedge funds in our database with MA positions at the end of the previous quarter. Our calculations also showed that MA currently ranks #8 among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Glen Kacher of Light Street Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a glance at the recent hedge fund action regarding Mastercard Incorporated (NYSE:MA).

How have hedgies been trading Mastercard Incorporated (NYSE:MA)?

At the end of the third quarter, a total of 114 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the second quarter of 2019. On the other hand, there were a total of 95 hedge funds with a bullish position in MA a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Gardner Russo & Gardner was the largest shareholder of Mastercard Incorporated (NYSE:MA), with a stake worth $1812 million reported as of the end of September. Trailing Gardner Russo & Gardner was Akre Capital Management, which amassed a stake valued at $1446.7 million. Berkshire Hathaway, Arrowstreet Capital, and GQG Partners 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 KG Funds Management allocated the biggest weight to Mastercard Incorporated (NYSE:MA), around 17.52% of its 13F portfolio. Akre Capital Management is also relatively very bullish on the stock, designating 14.26 percent of its 13F equity portfolio to MA.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Light Street Capital, managed by Glen Kacher, established the most outsized position in Mastercard Incorporated (NYSE:MA). Light Street Capital had $42.1 million invested in the company at the end of the quarter. Rob Citrone’s Discovery Capital Management also initiated a $19.7 million position during the quarter. The other funds with brand new MA positions are Israel Englander’s Millennium Management, Bernard Selz’s Selz Capital, and Leon Shaulov’s Maplelane Capital.

Let’s also examine hedge fund activity in other stocks similar to Mastercard Incorporated (NYSE:MA). We will take a look at Bank of America Corporation (NYSE:BAC), The Home Depot, Inc. (NYSE:HD), Verizon Communications Inc. (NYSE:VZ), and Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM). All of these stocks’ market caps resemble MA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BAC 95 32049756 1
HD 60 4349926 7
VZ 56 2373783 2
TSM 52 5161771 10
Average 65.75 10983809 5

View table here if you experience formatting issues.

As you can see these stocks had an average of 65.75 hedge funds with bullish positions and the average amount invested in these stocks was $10984 million. That figure was $13207 million in MA’s case. Bank of America Corporation (NYSE:BAC) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 52 bullish hedge fund positions. Compared to these stocks Mastercard Incorporated (NYSE:MA) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on MA as the stock returned 58.5% so far in 2019 (through 12/23) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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