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Were Hedge Funds Right About Marsh & McLennan Companies, Inc. (MMC)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Marsh & McLennan Companies, Inc. (NYSE:MMC) and determine whether the smart money was really smart about this stock.

Marsh & McLennan Companies, Inc. (NYSE:MMC) investors should be aware of an increase in hedge fund interest in recent months. Our calculations also showed that MMC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let’s view the latest hedge fund action surrounding Marsh & McLennan Companies, Inc. (NYSE:MMC).

How are hedge funds trading Marsh & McLennan Companies, Inc. (NYSE:MMC)?

At Q1’s end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MMC over the last 18 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Is MMC A Good Stock To Buy?

The largest stake in Marsh & McLennan Companies, Inc. (NYSE:MMC) was held by Polar Capital, which reported holding $168.4 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $138.3 million position. Other investors bullish on the company included Markel Gayner Asset Management, AQR Capital Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Bishop Rock Capital allocated the biggest weight to Marsh & McLennan Companies, Inc. (NYSE:MMC), around 5.33% of its 13F portfolio. Oribel Capital Management is also relatively very bullish on the stock, earmarking 2.67 percent of its 13F equity portfolio to MMC.

Consequently, key money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Marsh & McLennan Companies, Inc. (NYSE:MMC). Arrowstreet Capital had $19.5 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $14.9 million investment in the stock during the quarter. The following funds were also among the new MMC investors: Mikal Patel’s Oribel Capital Management, Peter Seuss’s Prana Capital Management, and Greg Eisner’s Engineers Gate Manager.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Marsh & McLennan Companies, Inc. (NYSE:MMC) but similarly valued. We will take a look at Deere & Company (NYSE:DE), Global Payments Inc (NYSE:GPN), The Charles Schwab Corporation (NYSE:SCHW), and The Progressive Corporation (NYSE:PGR). This group of stocks’ market valuations are similar to MMC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DE 44 875005 -6
GPN 67 2154936 3
SCHW 62 2907493 -8
PGR 51 1505680 3
Average 56 1860779 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 56 hedge funds with bullish positions and the average amount invested in these stocks was $1861 million. That figure was $668 million in MMC’s case. Global Payments Inc (NYSE:GPN) is the most popular stock in this table. On the other hand Deere & Company (NYSE:DE) is the least popular one with only 44 bullish hedge fund positions. Compared to these stocks Marsh & McLennan Companies, Inc. (NYSE:MMC) is even less popular than DE. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on MMC, though not to the same extent, as the stock returned 24.8% during the second quarter and outperformed the market as well.

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