A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on Moody’s Corporation (NYSE:MCO).
Is MCO a good stock to buy now? Moody’s Corporation (NYSE:MCO) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. Moody’s Corporation (NYSE:MCO) was in 60 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 61. Our calculations also showed that MCO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s review the latest hedge fund action regarding Moody’s Corporation (NYSE:MCO).
What does smart money think about Moody’s Corporation (NYSE:MCO)?
At Q3’s end, a total of 60 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the previous quarter. On the other hand, there were a total of 55 hedge funds with a bullish position in MCO a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Berkshire Hathaway was the largest shareholder of Moody’s Corporation (NYSE:MCO), with a stake worth $7150.5 million reported as of the end of September. Trailing Berkshire Hathaway was Akre Capital Management, which amassed a stake valued at $1633.1 million. Viking Global, AltaRock Partners, and Windacre Partnership 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 Rings Capital Management allocated the biggest weight to Moody’s Corporation (NYSE:MCO), around 36.84% of its 13F portfolio. Valley Forge Capital is also relatively very bullish on the stock, dishing out 18.51 percent of its 13F equity portfolio to MCO.
Because Moody’s Corporation (NYSE:MCO) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of fund managers that decided to sell off their positions entirely last quarter. Intriguingly, James Parsons’s Junto Capital Management cut the largest position of all the hedgies tracked by Insider Monkey, comprising about $64.8 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund sold off about $16.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Moody’s Corporation (NYSE:MCO) but similarly valued. We will take a look at America Movil SAB de CV (NYSE:AMX), Applied Materials, Inc. (NASDAQ:AMAT), Vale SA (NYSE:VALE), ABB Ltd (NYSE:ABB), U.S. Bancorp (NYSE:USB), Mercadolibre Inc (NASDAQ:MELI), and Global Payments Inc (NYSE:GPN). All of these stocks’ market caps resemble MCO’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 44 hedge funds with bullish positions and the average amount invested in these stocks was $3051 million. That figure was $11435 million in MCO’s case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 13 bullish hedge fund positions. Moody’s Corporation (NYSE:MCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MCO is 68.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately MCO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MCO were disappointed as the stock returned -3.9% since the end of September (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.