Is MSCI A Good Stock To Buy Now?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards MSCI Inc (NYSE:MSCI).

Is MSCI a good stock to buy now? The best stock pickers were buying. The number of bullish hedge fund positions advanced by 3 recently. MSCI Inc (NYSE:MSCI) was in 47 hedge funds’ portfolios at the end of September. The all time high for this statistic is 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MSCI 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.

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’ 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 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.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this cannabis tech 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 we’re going to take a glance at the new hedge fund action surrounding MSCI Inc (NYSE:MSCI).

Do Hedge Funds Think MSCI Is A Good Stock To Buy Now?

At the end of September, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the second quarter of 2020. By comparison, 40 hedge funds held shares or bullish call options in MSCI a year ago. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is MSCI A Good Stock To Buy?

The largest stake in MSCI Inc (NYSE:MSCI) was held by Melvin Capital Management, which reported holding $133.8 million worth of stock at the end of September. It was followed by SCGE Management with a $120.9 million position. Other investors bullish on the company included Junto Capital Management, Fisher Asset Management, and Echo Street Capital Management. In terms of the portfolio weights assigned to each position Kadensa Capital allocated the biggest weight to MSCI Inc (NYSE:MSCI), around 11.38% of its 13F portfolio. Totem Point Management is also relatively very bullish on the stock, setting aside 5.88 percent of its 13F equity portfolio to MSCI.

Now, some big names have jumped into MSCI Inc (NYSE:MSCI) headfirst. Melvin Capital Management, managed by Gabriel Plotkin, initiated the largest position in MSCI Inc (NYSE:MSCI). Melvin Capital Management had $133.8 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $2.1 million investment in the stock during the quarter. The following funds were also among the new MSCI investors: David Rodriguez-Fraile’s BlueMar Capital Management, D. E. Shaw’s D E Shaw, and Jinghua Yan’s TwinBeech Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as MSCI Inc (NYSE:MSCI) but similarly valued. These stocks are The Hershey Company (NYSE:HSY), Republic Services, Inc. (NYSE:RSG), Cadence Design Systems Inc (NASDAQ:CDNS), Brown-Forman Corporation (NYSE:BF), PACCAR Inc (NASDAQ:PCAR), The Allstate Corporation (NYSE:ALL), and T. Rowe Price Group, Inc. (NASDAQ:TROW). All of these stocks’ market caps match MSCI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HSY 43 1230648 4
RSG 37 870212 0
CDNS 37 1208067 -2
BF 32 672078 4
PCAR 34 442104 4
ALL 38 1246660 -8
TROW 34 348235 0
Average 36.4 859715 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.4 hedge funds with bullish positions and the average amount invested in these stocks was $860 million. That figure was $906 million in MSCI’s case. The Hershey Company (NYSE:HSY) is the most popular stock in this table. On the other hand Brown-Forman Corporation (NYSE:BF) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks MSCI Inc (NYSE:MSCI) is more popular among hedge funds. Our overall hedge fund sentiment score for MSCI is 88. 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 returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on MSCI as the stock returned 19.7% since the end of September (through 12/8) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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