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Were Hedge Funds Right About Moody’s Corporation (MCO)?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtMoody’s Corporation (NYSE:MCO) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Moody’s Corporation (NYSE:MCO) was in 50 hedge funds’ portfolios at the end of the first quarter of 2020. MCO investors should pay attention to an increase in support from the world’s most elite money managers lately. There were 49 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 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the key hedge fund action regarding Moody’s Corporation (NYSE:MCO).

How have hedgies been trading Moody’s Corporation (NYSE:MCO)?

At the end of the first quarter, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MCO over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is MCO A Good Stock To Buy?

The largest stake in Moody’s Corporation (NYSE:MCO) was held by Berkshire Hathaway, which reported holding $5217.7 million worth of stock at the end of September. It was followed by Akre Capital Management with a $1192.5 million position. Other investors bullish on the company included Windacre Partnership, AltaRock Partners, and Triple Frond Partners. In terms of the portfolio weights assigned to each position Rings Capital Management allocated the biggest weight to Moody’s Corporation (NYSE:MCO), around 38.41% of its 13F portfolio. Windacre Partnership is also relatively very bullish on the stock, earmarking 20.29 percent of its 13F equity portfolio to MCO.

As aggregate interest increased, specific money managers have jumped into Moody’s Corporation (NYSE:MCO) headfirst. Select Equity Group, managed by Robert Joseph Caruso, assembled the biggest position in Moody’s Corporation (NYSE:MCO). Select Equity Group had $73 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $30.8 million position during the quarter. The following funds were also among the new MCO investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Brett Huckelbridge’s Steel Canyon Capital, and David Atterbury’s Whetstone Capital Advisors.

Let’s check out hedge fund activity in other stocks similar to Moody’s Corporation (NYSE:MCO). We will take a look at American Electric Power Company, Inc. (NYSE:AEP), Waste Management, Inc. (NYSE:WM), Edwards Lifesciences Corporation (NYSE:EW), and L3Harris Technologies, Inc. (NASDAQ:LHX). This group of stocks’ market caps resemble MCO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AEP 38 1070882 4
WM 40 2563267 8
EW 49 1405375 4
LHX 43 1593570 -5
Average 42.5 1658274 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.5 hedge funds with bullish positions and the average amount invested in these stocks was $1658 million. That figure was $8553 million in MCO’s case. Edwards Lifesciences Corporation (NYSE:EW) is the most popular stock in this table. On the other hand American Electric Power Company, Inc. (NYSE:AEP) is the least popular one with only 38 bullish hedge fund positions. Compared to these stocks Moody’s Corporation (NYSE:MCO) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on MCO as the stock returned 30.2% in Q2 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.

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