Were Hedge Funds Right About Marsh & McLennan (MMC)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of December. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Marsh & McLennan Companies, Inc. (NYSE:MMC), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Marsh & McLennan Companies, Inc. (NYSE:MMC) shareholders have witnessed an increase in hedge fund interest recently. Our calculations also showed that MMC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the eyes of most traders, hedge funds are perceived as underperforming, outdated investment vehicles of years past. While there are greater than 8000 funds in operation at present, Our experts look at the bigwigs of this club, around 850 funds. It is estimated that this group of investors control most of the hedge fund industry’s total asset base, and by keeping an eye on their highest performing equity investments, Insider Monkey has uncovered many investment strategies that have historically exceeded the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a glance at the latest hedge fund action encompassing Marsh & McLennan Companies, Inc. (NYSE:MMC).

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

At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in MMC a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

The largest stake in Marsh & McLennan Companies, Inc. (NYSE:MMC) was held by Polar Capital, which reported holding $203.8 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $136.9 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 4.63% of its 13F portfolio. Polar Capital is also relatively very bullish on the stock, designating 1.77 percent of its 13F equity portfolio to MMC.

As one would reasonably expect, specific money managers have jumped into Marsh & McLennan Companies, Inc. (NYSE:MMC) headfirst. Sciencast Management, managed by Qing Li, created the most valuable position in Marsh & McLennan Companies, Inc. (NYSE:MMC). Sciencast Management had $3.2 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also made a $0.4 million investment in the stock during the quarter. The following funds were also among the new MMC investors: John Brandmeyer’s Cognios Capital, George Zweig, Shane Haas and Ravi Chander’s Signition LP, and Frederick DiSanto’s Ancora Advisors.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Marsh & McLennan Companies, Inc. (NYSE:MMC) but similarly valued. These stocks are Applied Materials, Inc. (NASDAQ:AMAT), Schlumberger Limited. (NYSE:SLB), Ecolab Inc. (NYSE:ECL), and Global Payments Inc (NYSE:GPN). This group of stocks’ market caps are closest to MMC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMAT 72 3452552 17
SLB 47 1207839 -6
ECL 44 2301979 2
GPN 64 4063969 -4
Average 56.75 2756585 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 56.75 hedge funds with bullish positions and the average amount invested in these stocks was $2757 million. That figure was $649 million in MMC’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Ecolab Inc. (NYSE:ECL) 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 ECL. Hedge funds dodged a bullet by taking a bearish stance towards MMC. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately MMC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); MMC investors were disappointed as the stock returned -12% during the same time period 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 most of these stocks already outperformed the market so far in 2020.
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.