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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not ABIOMED, Inc. (NASDAQ:ABMD) makes for a good investment right now.
ABIOMED, Inc. (NASDAQ:ABMD) investors should be aware of an increase in hedge fund sentiment of late. ABMD was in 35 hedge funds’ portfolios at the end of December. There were 24 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 Q4 rankings and see the video at the end of this article for Q3 rankings).
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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
William Leland Edwards of Palo Alto Investors
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. Keeping this in mind we’re going to view the recent hedge fund action encompassing ABIOMED, Inc. (NASDAQ:ABMD).
How have hedgies been trading ABIOMED, Inc. (NASDAQ:ABMD)?
At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 46% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in ABMD a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Renaissance Technologies has the biggest position in ABIOMED, Inc. (NASDAQ:ABMD), worth close to $396.3 million, accounting for 0.3% of its total 13F portfolio. The second most bullish fund manager is Palo Alto Investors, led by William Leland Edwards, holding a $96.2 million position; 5.3% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism encompass Arthur B Cohen and Joseph Healey’s Healthcor Management LP, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Palo Alto Investors allocated the biggest weight to ABIOMED, Inc. (NASDAQ:ABMD), around 5.3% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, setting aside 1.74 percent of its 13F equity portfolio to ABMD.
With a general bullishness amongst the heavyweights, key money managers have jumped into ABIOMED, Inc. (NASDAQ:ABMD) headfirst. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, established the biggest position in ABIOMED, Inc. (NASDAQ:ABMD). Healthcor Management LP had $48.9 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $11 million investment in the stock during the quarter. The other funds with brand new ABMD positions are Paul Tudor Jones’s Tudor Investment Corp, Matthew L Pinz’s Pinz Capital, and Christiana Goh Bardon’s Burrage Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as ABIOMED, Inc. (NASDAQ:ABMD) but similarly valued. We will take a look at Douglas Emmett, Inc. (NYSE:DEI), Apartment Investment and Management Co. (NYSE:AIV), IPG Photonics Corporation (NASDAQ:IPGP), and Amarin Corporation plc (NASDAQ:AMRN). This group of stocks’ market values are closest to ABMD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DEI | 19 | 631403 | -4 |
| AIV | 24 | 581817 | -4 |
| IPGP | 25 | 194608 | 8 |
| AMRN | 36 | 1534460 | 6 |
| Average | 26 | 735572 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $736 million. That figure was $680 million in ABMD’s case. Amarin Corporation plc (NASDAQ:AMRN) is the most popular stock in this table. On the other hand Douglas Emmett, Inc. (NYSE:DEI) is the least popular one with only 19 bullish hedge fund positions. ABIOMED, Inc. (NASDAQ:ABMD) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on ABMD as the stock returned -16.5% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
