Moody’s Corporation (MCO) vs. Hedge Fund Favorites in 2019

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Moody’s Corporation (NYSE:MCO) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. MCO was in 48 hedge funds’ portfolios at the end of September. There were 39 hedge funds in our database with MCO positions at the end of the previous quarter. 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 at the end of this article for Q2 rankings).

To most market participants, hedge funds are perceived as worthless, outdated financial vehicles of years past. While there are over 8000 funds in operation at the moment, Our researchers choose to focus on the moguls of this club, around 750 funds. These hedge fund managers administer most of all hedge funds’ total asset base, and by paying attention to their first-class picks, Insider Monkey has determined a few investment strategies that have historically surpassed the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Warren Buffett of Berkshire Hathaway

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now 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 the end of the third quarter, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 23% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MCO over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MCO A Good Stock To Buy?

Among these funds, Berkshire Hathaway held the most valuable stake in Moody’s Corporation (NYSE:MCO), which was worth $5053.1 million at the end of the third quarter. On the second spot was Akre Capital Management which amassed $1163.8 million worth of shares. Windacre Partnership, AltaRock Partners, and Millennium Management 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 Valley Forge Capital allocated the biggest weight to Moody’s Corporation (NYSE:MCO), around 20.43% of its 13F portfolio. AltaRock Partners is also relatively very bullish on the stock, earmarking 18.64 percent of its 13F equity portfolio to MCO.

As industrywide interest jumped, key money managers were breaking ground themselves. Atalan Capital, managed by David Thomas, initiated the most valuable position in Moody’s Corporation (NYSE:MCO). Atalan Capital had $79.9 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $39.1 million position during the quarter. The other funds with brand new MCO positions are David Harding’s Winton Capital Management, Steve Cohen’s Point72 Asset Management, and Minhua Zhang’s Weld Capital Management.

Let’s now review hedge fund activity in other stocks similar to Moody’s Corporation (NYSE:MCO). We will take a look at AFLAC Incorporated (NYSE:AFL), Travelers Companies Inc (NYSE:TRV), Ferrari N.V. (NYSE:RACE), and Keurig Dr Pepper Inc. (NASDAQ:KDP). All of these stocks’ market caps are closest to MCO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AFL 27 528066 4
TRV 34 1514479 8
RACE 32 1530799 2
KDP 20 669516 -1
Average 28.25 1060715 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $1061 million. That figure was $7835 million in MCO’s case. Travelers Companies Inc (NYSE:TRV) is the most popular stock in this table. On the other hand Keurig Dr Pepper Inc. (NASDAQ:KDP) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Moody’s Corporation (NYSE:MCO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on MCO as the stock returned 71% so far in 2019 (through 12/23) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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