Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding AmerisourceBergen Corporation (NYSE:ABC).
AmerisourceBergen Corporation (NYSE:ABC) was in 40 hedge funds’ portfolios at the end of the fourth quarter of 2019. ABC shareholders have witnessed an increase in enthusiasm from smart money in recent months. There were 38 hedge funds in our database with ABC positions at the end of the previous quarter. Our calculations also showed that ABC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Larry Robbins of Glenview Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the new hedge fund action regarding AmerisourceBergen Corporation (NYSE:ABC).
How have hedgies been trading AmerisourceBergen Corporation (NYSE:ABC)?
At the end of the fourth quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ABC over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in AmerisourceBergen Corporation (NYSE:ABC) was held by Glenview Capital, which reported holding $203.8 million worth of stock at the end of September. It was followed by Baupost Group with a $99.2 million position. Other investors bullish on the company included AQR Capital Management, Two Sigma Advisors, and GLG Partners. In terms of the portfolio weights assigned to each position Endurant Capital Management allocated the biggest weight to AmerisourceBergen Corporation (NYSE:ABC), around 5.86% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, dishing out 5 percent of its 13F equity portfolio to ABC.
As industrywide interest jumped, key money managers have been driving this bullishness. Renaissance Technologies, created the biggest position in AmerisourceBergen Corporation (NYSE:ABC). Renaissance Technologies had $11.7 million invested in the company at the end of the quarter. Nathan Przybylo’s L2 Asset Management also initiated a $2.8 million position during the quarter. The following funds were also among the new ABC investors: Dmitry Balyasny’s Balyasny Asset Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Israel Englander’s Millennium Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as AmerisourceBergen Corporation (NYSE:ABC) but similarly valued. We will take a look at Martin Marietta Materials, Inc. (NYSE:MLM), Teleflex Incorporated (NYSE:TFX), Altice USA, Inc. (NYSE:ATUS), and Arch Capital Group Ltd. (NASDAQ:ACGL). All of these stocks’ market caps are similar to ABC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MLM | 52 | 2345404 | 9 |
| TFX | 32 | 936280 | 4 |
| ATUS | 54 | 3046592 | -1 |
| ACGL | 23 | 1250755 | 1 |
| Average | 40.25 | 1894758 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $1895 million. That figure was $581 million in ABC’s case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand Arch Capital Group Ltd. (NASDAQ:ACGL) is the least popular one with only 23 bullish hedge fund positions. AmerisourceBergen Corporation (NYSE:ABC) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on ABC as the stock returned -4.9% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
