Did Hedge Funds Make The Right Call On ABIOMED, Inc. (ABMD) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 ABIOMED, Inc. (NASDAQ:ABMD) and determine whether the smart money was really smart about this stock.

ABIOMED, Inc. (NASDAQ:ABMD) has seen a decrease in support from the world’s most elite money managers in recent months. ABMD was in 27 hedge funds’ portfolios at the end of March. There were 35 hedge funds in our database with ABMD positions at the end of the previous quarter. Our calculations also showed that ABMD 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Joel Greenblatt of Gotham Asset Management

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 let’s take a glance at the fresh hedge fund action regarding ABIOMED, Inc. (NASDAQ:ABMD).

What does smart money think about ABIOMED, Inc. (NASDAQ:ABMD)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ABMD over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in ABIOMED, Inc. (NASDAQ:ABMD), which was worth $297.3 million at the end of the third quarter. On the second spot was Palo Alto Investors which amassed $73 million worth of shares. Deerfield Management, Great Point Partners, and Adage Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Palo Alto Investors allocated the biggest weight to ABIOMED, Inc. (NASDAQ:ABMD), around 6.11% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, dishing out 3.28 percent of its 13F equity portfolio to ABMD.

Because ABIOMED, Inc. (NASDAQ:ABMD) has witnessed a decline in interest from the smart money, logic holds that there exists a select few fund managers that slashed their positions entirely heading into Q4. Interestingly, Arthur B Cohen and Joseph Healey’s Healthcor Management LP sold off the biggest investment of the 750 funds monitored by Insider Monkey, comprising about $48.9 million in stock. Ken Griffin’s fund, Citadel Investment Group, also said goodbye to its stock, about $11 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 8 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as ABIOMED, Inc. (NASDAQ:ABMD) but similarly valued. These stocks are Zynga Inc (NASDAQ:ZNGA), F5 Networks, Inc. (NASDAQ:FFIV), Wynn Resorts, Limited (NASDAQ:WYNN), and Advance Auto Parts, Inc. (NYSE:AAP). All of these stocks’ market caps are closest to ABMD’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.25 hedge funds with bullish positions and the average amount invested in these stocks was $800 million. That figure was $523 million in ABMD’s case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand F5 Networks, Inc. (NASDAQ:FFIV) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks ABIOMED, Inc. (NASDAQ:ABMD) is even less popular than FFIV. Hedge funds clearly dropped the ball on ABMD as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on ABMD as the stock returned 66.4% in the second quarter and outperformed the market by an even larger margin.

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