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Is Moelis & Company (MC) 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 2018) 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 Moelis & Company (NYSE:MC).

Is Moelis & Company (NYSE:MC) a buy, sell, or hold? Hedge funds are becoming hopeful. The number of long hedge fund bets increased by 7 in recent months. Our calculations also showed that MC isn’t among the 30 most popular stocks among hedge funds. MC was in 20 hedge funds’ portfolios at the end of the third quarter of 2018. There were 13 hedge funds in our database with MC holdings at the end of the previous quarter.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Let’s go over the fresh hedge fund action surrounding Moelis & Company (NYSE:MC).

How are hedge funds trading Moelis & Company (NYSE:MC)?

At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 54% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MC over the last 13 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

MC_dec2018

The largest stake in Moelis & Company (NYSE:MC) was held by Royce & Associates, which reported holding $13.5 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $12.7 million position. Other investors bullish on the company included Azora Capital, Millennium Management, and D E Shaw.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Azora Capital, managed by Ravi Chopra, created the largest position in Moelis & Company (NYSE:MC). Azora Capital had $8.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $6.4 million investment in the stock during the quarter. The following funds were also among the new MC investors: Benjamin A. Smith’s Laurion Capital Management, Steve Cohen’s Point72 Asset Management, and Gregg Moskowitz’s Interval Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Moelis & Company (NYSE:MC) but similarly valued. These stocks are ProAssurance Corporation (NYSE:PRA), Urban Edge Properties (NYSE:UE), Apollo Commercial Real Est. Finance Inc (NYSE:ARI), and Mantech International Corp (NASDAQ:MANT). This group of stocks’ market caps resemble MC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PRA 13 211984 -1
UE 12 75334 2
ARI 7 20599 2
MANT 14 21437 2
Average 11.5 82339 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $80 million in MC’s case. Mantech International Corp (NASDAQ:MANT) is the most popular stock in this table. On the other hand Apollo Commercial Real Est. Finance Inc (NYSE:ARI) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Moelis & Company (NYSE:MC) 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.

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