Hedge Funds Are Dumping Medtronic, Inc. (MDT)

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Medtronic, Inc. (NYSE:MDT) was in 58 hedge funds’ portfolios at the end of the third quarter of 2015. MDT has experienced a decrease in support from the world’s most elite money managers of late. There were 63 hedge funds in our database with MDT holdings at the end of the previous quarter. At the end of this article we will also compare MDT to other stocks including McDonald’s Corporation (NYSE:MCD), Eli Lilly & Co. (NYSE:LLY), and Walgreens Boots Alliance Inc (NASDAQ:WBA) to get a better sense of its popularity.

If you’d ask most stock holders, hedge funds are perceived as underperforming, old investment tools of the past. While there are over 8000 funds in operation at present, We look at the top tier of this club, approximately 700 funds. These hedge fund managers administer most of the smart money’s total asset base, and by keeping track of their unrivaled picks, Insider Monkey has brought to light many investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Now, let’s analyze the new action surrounding Medtronic, Inc. (NYSE:MDT).

How are hedge funds trading Medtronic, Inc. (NYSE:MDT)?

At Q3’s end, a total of 58 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Senator Investment Group, managed by Doug Silverman and Alexander Klabin, holds the biggest position in Medtronic, Inc. (NYSE:MDT). Senator Investment Group has a $334.7 million position in the stock, comprising 4.1% of its 13F portfolio. Sitting at the No. 2 spot is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds a $179.1 million position; 0.5% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions include Bill Miller’s Legg Mason Capital Management, Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors and Curtis Macnguyen’s Ivory Capital (Investment Mgmt).

Because Medtronic, Inc. (NYSE:MDT) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of money managers that decided to sell off their full holdings by the end of the third quarter. Interestingly, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC sold off the largest stake of all the hedgies tracked by Insider Monkey, totaling an estimated $160.8 million in call options., and Howard Guberman’s Gruss Asset Management was right behind this move, as the fund dropped about $67.8 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 5 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Medtronic, Inc. (NYSE:MDT) but similarly valued. These stocks are McDonald’s Corporation (NYSE:MCD), Eli Lilly & Co. (NYSE:LLY), Walgreens Boots Alliance Inc (NASDAQ:WBA), and AbbVie Inc (NYSE:ABBV). This group of stocks’ market caps are similar to MDT’s market cap.

As you can see these stocks had an average of 72 hedge funds with bullish positions and the average amount invested in these stocks was $5789 million. That figure was $2051 million in MDT’s case. Walgreens Boots Alliance Inc (NASDAQ:WBA) is the most popular stock in this table, while Eli Lilly & Co. (NYSE:LLY) is the least popular one with only 47 bullish hedge fund positions. Medtronic, Inc. (NYSE:MDT) is not the least popular stock in this group, but hedge fund interest is still below average. This may indicate it doesn’t represent a good buying opportunity at the moment; therefore, we’d rather spend our time researching stocks that hedge funds are collectively the most fond of, such as WBA in this particular case.