Morgan Stanley (MS) vs. Top 20 Hedge Fund Stocks 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.

Morgan Stanley (NYSE:MS) was in 61 hedge funds’ portfolios at the end of September. MS has seen an increase in enthusiasm from smart money lately. There were 60 hedge funds in our database with MS holdings at the end of the previous quarter. 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 at the end of this article for Q2 rankings).

In today’s marketplace there are numerous signals market participants can use to grade stocks. Some of the less known signals are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the best fund managers can trounce the S&P 500 by a very impressive margin (see the details here).

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

We leave no stone unturned when looking for the next great investment idea. For example 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. 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 is still extremely cheap despite already gaining 20 percent. Now we’re going to take a glance at the key hedge fund action encompassing Morgan Stanley (NYSE:MS).

What does smart money think about Morgan Stanley (NYSE:MS)?

Heading into the fourth quarter of 2019, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MS over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, ValueAct Capital held the most valuable stake in Morgan Stanley (NYSE:MS), which was worth $949.4 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $661.3 million worth of shares. Pzena Investment Management, Arrowstreet Capital, and Diamond Hill Capital 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 Springhouse Capital Management allocated the biggest weight to Morgan Stanley (NYSE:MS), around 10.37% of its 13F portfolio. ValueAct Capital is also relatively very bullish on the stock, designating 10.24 percent of its 13F equity portfolio to MS.

As aggregate interest increased, key money managers have jumped into Morgan Stanley (NYSE:MS) headfirst. Carlson Capital, managed by Clint Carlson, assembled the largest position in Morgan Stanley (NYSE:MS). Carlson Capital had $69.1 million invested in the company at the end of the quarter. Edgar Wachenheim’s Greenhaven Associates also made a $11.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Ravi Chopra’s Azora Capital, Perella Weinberg Partners, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s now review hedge fund activity in other stocks similar to Morgan Stanley (NYSE:MS). These stocks are Fiserv, Inc. (NASDAQ:FISV), Celgene Corporation (NASDAQ:CELG), Automatic Data Processing, Inc. (NASDAQ:ADP), and Duke Energy Corporation (NYSE:DUK). All of these stocks’ market caps resemble MS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FISV 73 3874672 25
CELG 93 12535017 5
ADP 49 3101422 6
DUK 28 1316998 -4
Average 60.75 5207027 8

View table here if you experience formatting issues.

As you can see these stocks had an average of 60.75 hedge funds with bullish positions and the average amount invested in these stocks was $5207 million. That figure was $4163 million in MS’s case. Celgene Corporation (NASDAQ:CELG) is the most popular stock in this table. On the other hand Duke Energy Corporation (NYSE:DUK) is the least popular one with only 28 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 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 MS, though not to the same extent, as the stock returned 31.6% during 2019 (as of 12/23) and outperformed the market as well.
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.