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 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Merck & Co., Inc. (NYSE:MRK) and determine whether the smart money was really smart about this stock.
Merck & Co., Inc. (NYSE:MRK) shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months.Merck & Co., Inc. (NYSE:MRK) was in 76 hedge funds’ portfolios at the end of June. The all time high for this statistics is 84. There were 78 hedge funds in our database with MRK holdings at the end of March. Our calculations also showed that MRK isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a glance at the fresh hedge fund action encompassing Merck & Co., Inc. (NYSE:MRK).
What have hedge funds been doing with Merck & Co., Inc. (NYSE:MRK)?
At the end of June, a total of 76 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MRK over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Merck & Co., Inc. (NYSE:MRK) was held by Fisher Asset Management, which reported holding $703.9 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $668.8 million position. Other investors bullish on the company included D E Shaw, AQR Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Kahn Brothers allocated the biggest weight to Merck & Co., Inc. (NYSE:MRK), around 12.09% of its 13F portfolio. Antipodes Partners is also relatively very bullish on the stock, dishing out 6.62 percent of its 13F equity portfolio to MRK.
Judging by the fact that Merck & Co., Inc. (NYSE:MRK) has faced declining sentiment from hedge fund managers, it’s safe to say that there is a sect of money managers who were dropping their full holdings by the end of the second quarter. Interestingly, Michael Hintze’s CQS Cayman LP dropped the biggest investment of all the hedgies watched by Insider Monkey, worth close to $21.5 million in stock, and Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital was right behind this move, as the fund dumped about $18.5 million worth. These moves are interesting, as total hedge fund interest was cut by 2 funds by the end of the second quarter.
Let’s now review hedge fund activity in other stocks similar to Merck & Co., Inc. (NYSE:MRK). We will take a look at The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), PepsiCo, Inc. (NASDAQ:PEP), Pfizer Inc. (NYSE:PFE), Comcast Corporation (NASDAQ:CMCSA), Toyota Motor Corporation (NYSE:TM), and AbbVie Inc (NYSE:ABBV). This group of stocks’ market values are closest to MRK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KO | 59 | 20093024 | 4 |
| XOM | 53 | 1114752 | -12 |
| PEP | 53 | 3156792 | -4 |
| PFE | 66 | 2139163 | -1 |
| CMCSA | 80 | 7207135 | -3 |
| TM | 13 | 719379 | 2 |
| ABBV | 89 | 6226917 | 8 |
| Average | 59 | 5808166 | -0.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 59 hedge funds with bullish positions and the average amount invested in these stocks was $5808 million. That figure was $4854 million in MRK’s case. AbbVie Inc (NYSE:ABBV) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 13 bullish hedge fund positions. Merck & Co., Inc. (NYSE:MRK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MRK is 71.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately MRK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MRK were disappointed as the stock returned 10.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Follow Merck & Co. Inc. (NYSE:MRK)
Follow Merck & Co. Inc. (NYSE:MRK)
Disclosure: None. This article was originally published at Insider Monkey.
