Is MSCI Inc. (MSCI) A Smart Long-Term Buy?

Richie Capital Group, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here.  A quarterly portfolio net return of 2.6% was recorded by the RCG Long Only strategy for the second half of 2021, while the RCG Long Short Fund lost 2.5% for the same period. The fund’s closest benchmarks, the Russell 3000 Index and the Equity Long Short Index gained 8.2% and 2.6% for the quarter respectively. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Richie Capital Group, the fund mentioned MSCI Inc. (NYSE: MSCI), and discussed its stance on the firm. MSCI Inc. is a New York, New York-based finance company, that currently has a $46.2 billion market capitalization. MSCI delivered a 25.75% return since the beginning of the year, extending its 12-month revenues to 44.33%. The stock closed at $556.84 per share on July 19, 2021.

Here is what Richie Capital Group has to say about MSCI Inc. in its Q2 2021 investor letter:

MSCI (MSCI – up 25.0%) – The financial-index provider continues to see significant growth and now calculates more than 14,000 market indexes for everything from Chinese stock markets to European bonds. Companies also license MSCI’s data and analytic tools. MSCI is taking the lead in the world of thematic indexes such as genomics and blockchain technology. The company also has a leading role in rating companies on ESG criteria.”

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Based on our calculations, MSCI Inc. (NYSE: MSCI) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. MSCI Inc. was in 38 hedge fund portfolios at the end of the first quarter of 2021, compared to 41 funds in the fourth quarter of 2020. MSCI delivered a  20.08% return in the past 3 months.

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 115 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.

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