Is Mastercard Inc (NYSE:MA) Going to Burn These Hedge Funds?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 5.7% in the 12 months ending October 26 (including dividend payments). Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of June 2014) generated a return of 15.1% during the same 12-month period, with 53% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Mastercard Inc (NYSE:MA).

Is Mastercard Inc (NYSE:MA) a healthy stock for your portfolio? The smart money is becoming hopeful. The number of bullish hedge fund positions improved by 4 in recent months. MA was in 88 hedge funds’ portfolios at the end of June. There were 84 hedge funds in our database with MA holdings at the end of the previous quarter. Moreover, Mastercard was actually the 16th most popular stock among hedge funds at the end of the second quarter (see the list of 25 most popular stocks among hedge funds).

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 17.4% year to date and outperformed the market by more than 14 percentage points this year. This strategy also outperformed the market by 3 percentage points in the fourth quarter despite the market volatility (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Jane Mendillo

Let’s take a look at the new hedge fund action surrounding Mastercard Inc (NYSE:MA).

Hedge fund activity in Mastercard Inc (NYSE:MA)

At Q3’s end, a total of 88 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the previous quarter. On the other hand, there were a total of 82 hedge funds with a bullish position in MA at the beginning of this year. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).


Of the funds tracked by Insider Monkey, Tom Russo’s Gardner Russo & Gardner has the biggest position in Mastercard Inc (NYSE:MA), worth close to $1.7018 billion, corresponding to 12.4% of its total 13F portfolio. Sitting at the No. 2 spot is Charles Akre of Akre Capital Management, with a $1.0474 billion position; the fund has 13.2% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Ike Kier and Ilya Zaides’s KG Funds Management, John Kim’s Night Owl Capital Management and Harvard Management Co.

As industrywide interest jumped, key money managers were breaking ground themselves. Harvard Management Co initiated the most valuable position in Mastercard Inc (NYSE:MA). Harvard Management Co had $45.7 million invested in the company at the end of the quarter. Scott Phillips’s Latimer Light Capital also initiated a $15.6 million position during the quarter. The other funds with brand new MA positions are John Ku’s Manor Road Capital Partners, Ram Seshan Venkateswaran’s Vernier Capital, and Ben Gambill’s Tiger Eye Capital.

Let’s go over hedge fund activity in other stocks similar to Mastercard Inc (NYSE:MA). These stocks are Pfizer Inc. (NYSE:PFE), Verizon Communications Inc. (NYSE:VZ), Cisco Systems, Inc. (NASDAQ:CSCO), and The Procter & Gamble Company (NYSE:PG). This group of stocks’ market values are closest to MA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PFE 48 3571801 -3
VZ 48 1366743 1
CSCO 49 2875508 -5
PG 44 7178487 -2

As you can see these stocks had an average of 47.25 hedge funds with bullish positions and the average amount invested in these stocks was $3748 million. That figure was $9346 million in MA’s case. Cisco Systems, Inc. (NASDAQ:CSCO) is the most popular stock in this table. On the other hand The Procter & Gamble Company (NYSE:PG) is the least popular one with only 44 bullish hedge fund positions. Compared to these stocks Mastercard Inc (NYSE:MA) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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