Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Eli Lilly and Company (NYSE:LLY)? The smart money sentiment can provide an answer to this question.
Eli Lilly and Company (NYSE:LLY) shareholders have witnessed an increase in hedge fund interest in recent months. Eli Lilly and Company (NYSE:LLY) was in 64 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 60. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LLY isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.
Robert Pohly of Samlyn Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s go over the recent hedge fund action surrounding Eli Lilly and Company (NYSE:LLY).
Do Hedge Funds Think LLY Is A Good Stock To Buy Now?
Heading into the third quarter of 2021, a total of 64 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LLY over the last 24 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fisher Asset Management held the most valuable stake in Eli Lilly and Company (NYSE:LLY), which was worth $1379.5 million at the end of the second quarter. On the second spot was GQG Partners which amassed $391.2 million worth of shares. AQR Capital Management, Citadel Investment Group, and Adage Capital 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 Sustainable Insight Capital Management allocated the biggest weight to Eli Lilly and Company (NYSE:LLY), around 4.77% of its 13F portfolio. Partner Fund Management is also relatively very bullish on the stock, designating 3.78 percent of its 13F equity portfolio to LLY.
Consequently, key money managers have jumped into Eli Lilly and Company (NYSE:LLY) headfirst. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, assembled the largest position in Eli Lilly and Company (NYSE:LLY). Senator Investment Group had $91.8 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also made a $17.6 million investment in the stock during the quarter. The other funds with brand new LLY positions are Efrem Kamen’s Pura Vida Investments, D. E. Shaw’s D E Shaw, and Krishen Sud’s Sivik Global Healthcare.
Let’s check out hedge fund activity in other stocks similar to Eli Lilly and Company (NYSE:LLY). These stocks are Pfizer Inc. (NYSE:PFE), Oracle Corporation (NASDAQ:ORCL), Abbott Laboratories (NYSE:ABT), AT&T Inc. (NYSE:T), Novartis AG (NYSE:NVS), PepsiCo, Inc. (NYSE:PEP), and Chevron Corporation (NYSE:CVX). All of these stocks’ market caps resemble LLY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PFE | 67 | 2356906 | 2 |
| ORCL | 55 | 2889687 | 3 |
| ABT | 61 | 4367607 | -4 |
| T | 68 | 2896412 | 5 |
| NVS | 22 | 1798368 | 3 |
| PEP | 66 | 5193638 | 5 |
| CVX | 50 | 4272637 | 9 |
| Average | 55.6 | 3396465 | 3.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 55.6 hedge funds with bullish positions and the average amount invested in these stocks was $3396 million. That figure was $2995 million in LLY’s case. AT&T Inc. (NYSE:T) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 22 bullish hedge fund positions. Eli Lilly and Company (NYSE:LLY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LLY is 85.7. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and beat the market again by 6.2 percentage points. Unfortunately LLY wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on LLY were disappointed as the stock returned -1% since the end of June (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Eli Lilly & Co (NYSE:LLY)
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Disclosure: None. This article was originally published at Insider Monkey.
