Marsh & McLennan Companies (MMC) Slid on Concerns Over Softening Insurance Cycle

L1 Capital, an investment management firm, released its “L1 Capital International Fund” (unhedged) second quarter 2025 investor letter. A copy of the letter can be downloaded here. The fund returned 4.5% (net of fees) in the June quarter compared to the MSCI World Net Total Return Index’s (in AUD) 6.0% return. The Fund returned 22.1% (net of fees) for the year ended June 30, 2025, compared to 18.5% for the benchmark. During the quarter, the Information Technology and Communication Services sectors outperformed others, driven by the Magnificent 7. Please check the fund’s top five holdings to know its best picks in 2025.

In its second quarter 2025 investor letter, L1 Capital International Fund highlighted stocks such as Marsh & McLennan Companies, Inc. (NYSE:MMC). Marsh & McLennan Companies, Inc. (NYSE:MMC) is a professional services company that provides advisory services and insurance solutions. The one-month return of Marsh & McLennan Companies, Inc. (NYSE:MMC) was -1.09%, and its shares lost 2.50% of their value over the last 52 weeks. On July 16, 2025, Marsh & McLennan Companies, Inc. (NYSE:MMC) stock closed at $211.98 per share, with a market capitalization of $104.448 billion.

L1 Capital International Fund stated the following regarding Marsh & McLennan Companies, Inc. (NYSE:MMC) in its second quarter 2025 investor letter:

"On the negative side, 3 companies, Eagle Materials, Marsh & McLennan Companies, Inc. (NYSE:MMC) and UnitedHealth Group (in alphabetical order) each detracted more than 0.5% from the Fund’s returns for the quarter.

Marsh & McLennan’s share price underperformed due to concerns that the insurance cycle is softening. Marsh & McLennan does not provide insurance, but rather is the world’s largest insurance advisor and risk consultant. Part of the company’s revenue is linked to insurance premiums, and the company also derives significant advisory revenues that are not directly linked to the cost of insurance. Since the tariff policy extensions post Liberation Day, the market has been ‘risk on’ or in other words the share price of faster growth businesses has generally outperformed more steady, macro-insensitive businesses. While Marsh & McLennan does have some businesses that benefit from a healthy economy, insurance in general is an essential business requirement and less macro-sensitive than most industries. In this market environment where many market participants are chasing artificial intelligence and crypto exposure with little if any regard to valuation considerations, the defensive nature of the business has also contributed to the relative underperformance of Marsh & McLennan’s share price when measured over a brief 3-month period.

Current operating conditions are likely to lead to a slight reduction in profitability compared to our prior expectations, but we continue to have conviction in the quality of the Marsh & McLennan business, and its experienced management team. The share price has only fallen around 10% from record highs and is trading within our base case view of fair value. We have not adjusted the position size of our Marsh & McLennan investment."

Marsh & McLennan Companies, Inc. (NYSE:MMC) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 56 hedge fund portfolios held Marsh & McLennan Companies, Inc. (NYSE:MMC) at the end of the first quarter, compared to 69 in the fourth quarter. Marsh & McLennan Companies, Inc.’s (NYSE:MMC) first quarter revenue increased 9% to $7.1 billion. While we acknowledge the potential of MMC as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Marsh & McLennan Companies, Inc. (NYSE:MMC) and shared ClearBridge Large Cap Growth Strategy's views on the company. In addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors.

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