Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through November 22nd. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 52% and 49% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 34.7% in 2019 (through November 22) and outperformed the broader market benchmark by 8.5 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Thermo Fisher Scientific Inc. (NYSE:TMO) a buy, sell, or hold? Money managers are reducing their bets on the stock. The number of bullish hedge fund bets dropped by 7 in recent months. Our calculations also showed that TMO isn’t among the 30 most popular stocks among hedge funds. However, overall hedge fund sentiment is still strong when we compare TMO against similarly valued stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
William Von Mueffling of Cantillon Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the new hedge fund action surrounding Thermo Fisher Scientific Inc. (NYSE:TMO).
What have hedge funds been doing with Thermo Fisher Scientific Inc. (NYSE:TMO)?
At the end of the third quarter, a total of 65 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. On the other hand, there were a total of 56 hedge funds with a bullish position in TMO a year ago. 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 Thermo Fisher Scientific Inc. (NYSE:TMO) was held by Generation Investment Management, which reported holding $623.3 million worth of stock at the end of September. It was followed by AQR Capital Management with a $482.5 million position. Other investors bullish on the company included Marshall Wace, Cantillon Capital Management, and Diamond Hill Capital. In terms of the portfolio weights assigned to each position Cryder Capital allocated the biggest weight to Thermo Fisher Scientific Inc. (NYSE:TMO), around 15.49% of its portfolio. Copernicus Capital Management is also relatively very bullish on the stock, dishing out 7.85 percent of its 13F equity portfolio to TMO.
Seeing as Thermo Fisher Scientific Inc. (NYSE:TMO) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few funds that slashed their full holdings heading into Q4. At the top of the heap, Christopher James’s Partner Fund Management said goodbye to the largest position of all the hedgies followed by Insider Monkey, totaling close to $47.2 million in stock. Joe DiMenna’s fund, ZWEIG DIMENNA PARTNERS, also cut its stock, about $15.4 million worth. These transactions are important to note, as total hedge fund interest dropped by 7 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Thermo Fisher Scientific Inc. (NYSE:TMO). We will take a look at Royal Bank of Canada (NYSE:RY), Amgen, Inc. (NASDAQ:AMGN), Sanofi (NASDAQ:SNY), and Union Pacific Corporation (NYSE:UNP). This group of stocks’ market values are closest to TMO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RY | 17 | 491191 | 2 |
| AMGN | 48 | 2569750 | 6 |
| SNY | 27 | 985072 | 2 |
| UNP | 62 | 5197745 | -2 |
| Average | 38.5 | 2310940 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.5 hedge funds with bullish positions and the average amount invested in these stocks was $2311 million. That figure was $3445 million in TMO’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Thermo Fisher Scientific Inc. (NYSE:TMO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on TMO, though not to the same extent, as the stock returned 5.7% during the fourth quarter (through 11/22) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
