Was The Smart Money Right About MSCI Inc (MSCI)?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 887 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded MSCI Inc (NYSE:MSCI) based on those filings.

MSCI Inc (NYSE:MSCI) investors should be aware of a decrease in support from the world’s most elite money managers lately. MSCI Inc (NYSE:MSCI) was in 41 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 47. Our calculations also showed that MSCI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gabriel Plotkin Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

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

At the end of December, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the third quarter of 2020. On the other hand, there were a total of 42 hedge funds with a bullish position in MSCI a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in MSCI Inc (NYSE:MSCI) was held by Melvin Capital Management, which reported holding $200.9 million worth of stock at the end of December. It was followed by Holocene Advisors with a $113.4 million position. Other investors bullish on the company included Echo Street Capital Management, Fundsmith LLP, and Fisher Asset Management. In terms of the portfolio weights assigned to each position Kadensa Capital allocated the biggest weight to MSCI Inc (NYSE:MSCI), around 11.72% of its 13F portfolio. Bishop Rock Capital is also relatively very bullish on the stock, earmarking 3.63 percent of its 13F equity portfolio to MSCI.

Seeing as MSCI Inc (NYSE:MSCI) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds that elected to cut their positions entirely last quarter. Intriguingly, Christopher Lyle’s SCGE Management cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, comprising close to $120.9 million in stock. James Parsons’s fund, Junto Capital Management, also cut its stock, about $88 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 6 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to MSCI Inc (NYSE:MSCI). These stocks are Brown-Forman Corporation (NYSE:BF), ING Groep N.V. (NYSE:ING), Sempra Energy (NYSE:SRE), Eni SpA (NYSE:E), Fiat Chrysler Automobiles NV (NYSE:FCAU), CoStar Group Inc (NASDAQ:CSGP), and Agilent Technologies Inc. (NYSE:A). This group of stocks’ market values resemble MSCI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BF 29 1575074 -3
ING 9 397074 0
SRE 33 778325 1
E 4 42161 -1
FCAU 15 223893 -5
CSGP 51 2882489 -4
A 45 3507911 6
Average 26.6 1343847 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.6 hedge funds with bullish positions and the average amount invested in these stocks was $1344 million. That figure was $985 million in MSCI’s case. CoStar Group Inc (NASDAQ:CSGP) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 4 bullish hedge fund positions. MSCI Inc (NYSE:MSCI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MSCI is 64.5. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately MSCI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MSCI were disappointed as the stock returned 9% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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