Did Hedge Funds Make The Right Call On Catalent Inc (CTLT) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Catalent Inc (NYSE:CTLT) and determine whether hedge funds skillfully traded this stock.

Catalent Inc (NYSE:CTLT) was in 27 hedge funds’ portfolios at the end of the first quarter of 2020. CTLT investors should be aware of an increase in activity from the world’s largest hedge funds in recent months. There were 21 hedge funds in our database with CTLT positions at the end of the previous quarter. Our calculations also showed that CTLT 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.

Alex Litowitz of Magnetar Capital

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. With all of this in mind let’s take a look at the key hedge fund action encompassing Catalent Inc (NYSE:CTLT).

Hedge fund activity in Catalent Inc (NYSE:CTLT)

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CTLT over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Viking Global was the largest shareholder of Catalent Inc (NYSE:CTLT), with a stake worth $100.7 million reported as of the end of September. Trailing Viking Global was Citadel Investment Group, which amassed a stake valued at $91.8 million. Highline Capital Management, Redmile Group, and Millennium 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 Pinz Capital allocated the biggest weight to Catalent Inc (NYSE:CTLT), around 9.39% of its 13F portfolio. Highline Capital Management is also relatively very bullish on the stock, designating 7.58 percent of its 13F equity portfolio to CTLT.

Now, specific money managers were leading the bulls’ herd. Redmile Group, managed by Jeremy Green, established the most outsized position in Catalent Inc (NYSE:CTLT). Redmile Group had $26.3 million invested in the company at the end of the quarter. Robert B. Gillam’s McKinley Capital Management also made a $13.1 million investment in the stock during the quarter. The following funds were also among the new CTLT investors: Kevin Molloy’s Iron Triangle Partners, Bhagwan Jay Rao’s Integral Health Asset Management, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s check out hedge fund activity in other stocks similar to Catalent Inc (NYSE:CTLT). We will take a look at Citizens Financial Group Inc (NYSE:CFG), Shaw Communications Inc (NYSE:SJR), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), and Trimble Inc. (NASDAQ:TRMB). This group of stocks’ market values match CTLT’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $732 million. That figure was $385 million in CTLT’s case. Citizens Financial Group Inc (NYSE:CFG) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 12 bullish hedge fund positions. Catalent Inc (NYSE:CTLT) is not the least popular stock in this group but hedge fund interest is still below average. 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 CTLT as the stock returned 41.1% during the second quarter and outperformed the market by an even larger margin.

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