We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Morningstar, Inc. (NASDAQ:MORN).
Morningstar, Inc. (NASDAQ:MORN) shareholders have witnessed an increase in support from the world's most elite money managers in recent months. Our calculations also showed that MORN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26397" align="aligncenter" width="600"] Ray Dalio of Bridgewater Associates[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the latest hedge fund action regarding Morningstar, Inc. (NASDAQ:MORN).
How are hedge funds trading Morningstar, Inc. (NASDAQ:MORN)?
At Q3's end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in MORN a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Renaissance Technologies holds the most valuable position in Morningstar, Inc. (NASDAQ:MORN). Renaissance Technologies has a $97.3 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, led by Chuck Royce, holding a $75.3 million position; 0.7% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism include Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Robert Joseph Caruso's Select Equity Group and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Morningstar, Inc. (NASDAQ:MORN), around 0.7% of its 13F portfolio. Noked Capital is also relatively very bullish on the stock, dishing out 0.35 percent of its 13F equity portfolio to MORN.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. ExodusPoint Capital, managed by Michael Gelband, assembled the biggest position in Morningstar, Inc. (NASDAQ:MORN). ExodusPoint Capital had $0.4 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also initiated a $0.4 million position during the quarter. The other funds with new positions in the stock are Ray Dalio's Bridgewater Associates, Roy Vermus and Shlomi Bracha's Noked Capital, and Steve Cohen's Point72 Asset Management.
Let's now review hedge fund activity in other stocks similar to Morningstar, Inc. (NASDAQ:MORN). These stocks are Encompass Health Corporation (NYSE:EHC), People's United Financial, Inc. (NASDAQ:PBCT), InterXion Holding NV (NYSE:INXN), and PRA Health Sciences Inc (NASDAQ:PRAH). This group of stocks' market values are closest to MORN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EHC,22,423218,-1 PBCT,21,140867,3 INXN,29,655643,-5 PRAH,31,588717,6 Average,25.75,452111,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $452 million. That figure was $258 million in MORN's case. PRA Health Sciences Inc (NASDAQ:PRAH) is the most popular stock in this table. On the other hand People's United Financial, Inc. (NASDAQ:PBCT) is the least popular one with only 21 bullish hedge fund positions. Morningstar, Inc. (NASDAQ:MORN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on MORN, though not to the same extent, as the stock returned 7.7% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.