We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Morgan Stanley (NYSE:MS).
Is Morgan Stanley (NYSE:MS) a good stock to buy now? Money managers were taking a bullish view. The number of long hedge fund positions advanced by 9 recently. Morgan Stanley (NYSE:MS) was in 70 hedge funds’ portfolios at the end of September. The all time high for this statistics is 70. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MS 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). There were 61 hedge funds in our database with MS positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are several gauges investors put to use to appraise publicly traded companies. A couple of the most innovative gauges are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the elite money managers can outpace the broader indices by a superb margin (see the details here).
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. Keeping this in mind we’re going to go over the key hedge fund action surrounding Morgan Stanley (NYSE:MS).
How are hedge funds trading Morgan Stanley (NYSE:MS)?
Heading into the fourth quarter of 2020, a total of 70 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MS over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Morgan Stanley (NYSE:MS) was held by Eagle Capital Management, which reported holding $660.9 million worth of stock at the end of September. It was followed by ValueAct Capital with a $556 million position. Other investors bullish on the company included Greenhaven Associates, Fisher Asset Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to Morgan Stanley (NYSE:MS), around 9.78% of its 13F portfolio. Southport Management is also relatively very bullish on the stock, earmarking 8.7 percent of its 13F equity portfolio to MS.
As aggregate interest increased, key hedge funds have jumped into Morgan Stanley (NYSE:MS) headfirst. Crake Asset Management, managed by Martin Taylor, established the largest position in Morgan Stanley (NYSE:MS). Crake Asset Management had $21.4 million invested in the company at the end of the quarter. Daniel Johnson’s Gillson Capital also initiated a $20.1 million position during the quarter. The following funds were also among the new MS investors: Peter Seuss’s Prana Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Usman Waheed’s Strycker View Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Morgan Stanley (NYSE:MS) but similarly valued. These stocks are Canadian National Railway Company (NYSE:CNI), Rio Tinto Group (NYSE:RIO), Sea Limited (NYSE:SE), Prologis Inc (NYSE:PLD), Square, Inc. (NYSE:SQ), Altria Group Inc (NYSE:MO), and JD.Com Inc (NASDAQ:JD). This group of stocks’ market valuations match MS’s market valuation.
|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 54.6 hedge funds with bullish positions and the average amount invested in these stocks was $4739 million. That figure was $4167 million in MS’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 23 bullish hedge fund positions. Morgan Stanley (NYSE:MS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MS is 72.6. 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. 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on MS as the stock returned 33% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.