Were Hedge Funds Right About Piling Into Mastercard Incorporated (MA)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. 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 Mastercard Incorporated (NYSE:MA) and determine whether the smart money was really smart about this stock.

Is Mastercard Incorporated (NYSE:MA) a healthy stock for your portfolio? Investors who are in the know were taking an optimistic view. The number of long hedge fund bets went up by 14 lately. Our calculations also showed that MA ranks 8th 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). MA was in 139 hedge funds’ portfolios at the end of March. There were 125 hedge funds in our database with MA holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most stock holders, hedge funds are assumed to be slow, outdated investment tools of yesteryear. While there are greater than 8000 funds with their doors open today, Our experts look at the bigwigs of this club, around 850 funds. These money managers preside over the majority of all hedge funds’ total capital, and by shadowing their best picks, Insider Monkey has determined a number of investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Rajiv Jain of GQG Partners

Rajiv Jain of GQG Partners

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. 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. Keeping this in mind we’re going to go over the fresh hedge fund action encompassing Mastercard Incorporated (NYSE:MA).

How have hedgies been trading Mastercard Incorporated (NYSE:MA)?

At the end of the first quarter, a total of 139 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MA over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

The largest stake in Mastercard Incorporated (NYSE:MA) was held by Gardner Russo & Gardner, which reported holding $1443.9 million worth of stock at the end of September. It was followed by Akre Capital Management with a $1397.7 million position. Other investors bullish on the company included Berkshire Hathaway, Fisher Asset Management, and GQG Partners. In terms of the portfolio weights assigned to each position KG Funds Management allocated the biggest weight to Mastercard Incorporated (NYSE:MA), around 21.27% of its 13F portfolio. VGI Partners is also relatively very bullish on the stock, earmarking 16.34 percent of its 13F equity portfolio to MA.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Rivulet Capital, managed by Barry Lebovits and Joshua Kuntz, assembled the most valuable position in Mastercard Incorporated (NYSE:MA). Rivulet Capital had $145.6 million invested in the company at the end of the quarter. Anthony Bozza’s Lakewood Capital Management also initiated a $84.6 million position during the quarter. The other funds with brand new MA positions are Benjamin A. Smith’s Laurion Capital Management, James Crichton’s Hitchwood Capital Management, and Alexander Mitchell’s Scopus Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Mastercard Incorporated (NYSE:MA) but similarly valued. These stocks are UnitedHealth Group Inc. (NYSE:UNH), Intel Corporation (NASDAQ:INTC), Verizon Communications Inc. (NYSE:VZ), and AT&T Inc. (NYSE:T). All of these stocks’ market caps resemble MA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UNH 104 6665163 13
INTC 73 5958759 15
VZ 68 2673270 3
T 57 1646079 7
Average 75.5 4235818 9.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 75.5 hedge funds with bullish positions and the average amount invested in these stocks was $4236 million. That figure was $11897 million in MA’s case. UnitedHealth Group Inc. (NYSE:UNH) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 57 bullish hedge fund positions. Compared to these stocks Mastercard Incorporated (NYSE:MA) 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 gained 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on MA, though not to the same extent, as the stock returned 23.6% in Q2 (through June 25th) and outperformed the market as well.

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