We recently made a list of Goldman Sachs’ Top Fund Manager Stock Picks: 25 Best Overweight Stocks. In this piece, we will look at where Mastercard Incorporated (NYSE:MA) ranks among the top Goldman Sachs’ fund manager stocks.
With September and the third quarter of 2024 ending, Wall Street is now focused on two things. These are the economy and the earnings season. The former will guide investors on the impact of the Federal Reserve’s highly welcomed 50 basis point interest rate cut while the latter will let them determine whether the artificial intelligence sector is delivering profits.
The penultimate and the final month of the quarter have been quite eventful. Markets started out in August fearful after a poor showing from the labor market and the manufacturing sector. The labor market has been one of the primary drivers of the Fed’s interest rate policies, as the central bank has been eager to ‘cool’ it down to reduce payroll growth and inflation. However, investors worried at the August start that perhaps the central bank had been too restrictive.
Starting with the manufacturing weakness, the Institute of Supply Management’s (ISM) manufacturing Purchasing Managers Index (PMI) dropped to 46.8 from the previous month’s 48.5. On its own, this wasn’t particularly worrying as the Fed’s data for Q2 had shown a 3.4% annualized growth in factory production. However, the next data release for the labor market saw nonfarm payrolls jump by just 114,000 for a 101,000 drop for the preceding 12 months’ monthly additions. Additionally, unemployment jumped to 4.3%, for the highest level since September 2021. Investors were already wary of the job market as job openings had dropped by 46,000 in June. Consequently, they sold and led the flagship S&P index to drop by 6% and the broader NASDAQ index to shed 7.9% during the first week of August. These drops led the Magnificent 7 group of stocks to lose a stunning $800 billion in value.
Shifting gears, the volatility in the markets also merits a look at how mutual funds are performing. Like hedge funds, mutual fund managers are financial professionals with often decades of experience in managing money under their belt. Insider Monkey made a list of the 20 Best Mutual Funds in 2023 last year. This list was compiled in April, and naturally, it was dominated by mutual funds with significant investments in the technology sector. In this list, the five best performing mutual funds of 2023 were variants of a fund that invested in the semiconductor industry. The next five all had investments in the big tech sector, and with the two groups, the two top performing mutual funds had made 23% in trailing year to date returns for the technology funds and 28% for the semiconductor funds.
But what about 2024? After all, not only has the global geopolitical climate made gold shinier than usual, but rate cuts are also increasing the investor itch to diversify holdings from large caps to small and medium cap stocks. Well, while semiconductor mutual funds have delivered strong returns so far, others have also joined the list. Taking a closer look reveals that 5 star mutual funds focusing on spinoff companies or those being restructured, those investing in underappreciated businesses with long product cycles, companies investing in capital markets, gold mutual funds, and small cap funds have all surpassed semiconductor funds. In respective order, the top performing mutual funds in these categories have delivered 51%, 49%, 44%, 42%, and 42% in year to date trailing returns while the flagship S&P index has gained 21.4% through price appreciation year to date.
2024 has been a good year for mutual funds overall. Data from BofA shows that in Q1 2024, actively managed mutual funds delivered their best set of performance in 17 years. As per the bank, 64% of these funds had beaten their benchmarks which was a sizeable increase over the 38% that had eked out similar performance in 2023. BofA speculated that a broader equity outperformance might have led to the improved mutual fund performance, with analysts stating that while “healthier market breadth should give managers better odds of selecting stocks that will outperform, a shift in leadership away from mega cap Tech poses a risk to those still betting on last year’s winners.”
The shift in market trends due to the Fed’s interest rate cut has also shaken up investment advisors’ perception of low risk mutual funds called money market funds. Data shows that retail investor assets in these mutual funds sat at a whopping $2.6 trillion as of September 18th, 2024. This marks an equally stunning growth of 80% since 2022’s start as retail investors piled in $951 billion in the funds to benefit from a rate hike cycle that would eventually culminate at 24 year high interest rates in the US. The shifts in mutual fund sentiment coupled with strong fund performance at a time when the SEC has approved new rules, which will go into effect in 2026 if adopted, which will require mutual funds with net assets less than $1 billion to file monthly portfolio holding reports as opposed to quarterly reports.
Before the rate cut, Goldman Sachs took a look at the recession odds in America. A recession will be the key driver of index performance after rate cuts especially when we consider historical data. Mind you, GS was one of the few banks that stood against the broader analyst predictions of a recession in 2022, and as of early September, its analysts had a 12 month ahead US recession probability of 20%. This was still lower than the Bloomberg consensus of 30%, and in its report, the bank added that the US economy should continue to grow at 2%.
Our Methodology
To make our list of Goldman Sachs’ favorite mutual fund manager stocks, we ranked the bank’s recent list of 50 stocks where large cap, growth, and value mutual fund managers had positions overweight with respect to the benchmark index. Out of these, the stocks that were the most overweight were selected. For a list of hedge fund stocks, you can read Goldman Sachs’ Best Hedge Fund Stock Picks: Top 20 Stocks.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Investors In Q2 2024: 142
Mutual Fund Overweight Percentage: 0.15%
Mastercard Incorporated (NYSE:MA) is the smaller of the two major payments processing companies in the US. Along with Visa, the firm controls 76% of the US credit card market share, but is quite smaller due to its 24% share compared to Visa’s 52%. This means that unlike Visa, Mastercard Incorporated (NYSE:MA) has to be on the watch out for competitors, especially as the third biggest credit card company AMEX holds 20% of the market. When it comes to maintaining market share, 2024 has been historic for Mastercard Incorporated (NYSE:MA) and Visa since the duo has agreed to a historic $35 billion in fee reductions for merchants. However, the future of the deal is unclear after a judge struck it down, and any further disappointing news could spell trouble. Another key issue that Mastercard Incorporated (NYSE:MA) has been facing is trouble with retailers who are dissatisfied with fraud liability protection for consumers. On this front, the firm is aiming to introduce the First Party Trust program that aims to shift liability protection away from merchants. The stock’s overall health depends on purchasing volumes and consumer spending strengths, with lower rates also carrying the potential to grow the credit card business.
L1 Capital mentioned Mastercard Incorporated (NYSE:MA) in its Q2 2024 investor letter. Here is what the firm said:
“The share prices of Mastercard and Visa, both long term Fund investments, have both drifted down over recent months. There have been no dramatic developments, but there has been a general slight softening in the rate of growth of consumer spending in the U.S. and globally, a court decision rejecting Mastercard and Visa’s proposed settlement of a long-lasting dispute with U.S. merchants as well as other modest adverse regulatory developments. We continue to view Mastercard and Visa as two of the highest quality businesses in the world, and both are well placed to continue to deliver attractive, risk adjusted returns to shareholders over time.”
Overall MA ranks 5th when we look at Goldman’s list of stocks that fund managers are buying. While we acknowledge the potential of MA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey. All investment decisions should be made after consulting a qualified professional.