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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Novartis AG (NYSE:NVS) based on that data.
Novartis AG (NYSE:NVS) has seen an increase in enthusiasm from smart money in recent months. Our calculations also showed that NVS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Ken Fisher of Fisher Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s review the fresh hedge fund action regarding Novartis AG (NYSE:NVS).
How are hedge funds trading Novartis AG (NYSE:NVS)?
At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NVS over the last 18 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 Novartis AG (NYSE:NVS) was held by Fisher Asset Management, which reported holding $797.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $625.1 million position. Other investors bullish on the company included Arrowstreet Capital, Alyeska Investment Group, and Redmile Group. In terms of the portfolio weights assigned to each position Bourgeon Capital allocated the biggest weight to Novartis AG (NYSE:NVS), around 2.47% of its 13F portfolio. Osterweis Capital Management is also relatively very bullish on the stock, designating 1.98 percent of its 13F equity portfolio to NVS.
As one would reasonably expect, specific money managers have jumped into Novartis AG (NYSE:NVS) headfirst. Redmile Group, managed by Jeremy Green, established the biggest position in Novartis AG (NYSE:NVS). Redmile Group had $54.3 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also initiated a $11.8 million position during the quarter. The other funds with brand new NVS positions are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Nick Thakore’s Diametric Capital, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Novartis AG (NYSE:NVS) but similarly valued. These stocks are Comcast Corporation (NASDAQ:CMCSA), Cisco Systems, Inc. (NASDAQ:CSCO), Toyota Motor Corporation (NYSE:TM), and PepsiCo, Inc. (NYSE:PEP). This group of stocks’ market caps are similar to NVS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMCSA | 87 | 6747748 | -3 |
| CSCO | 68 | 4029813 | 3 |
| TM | 12 | 249046 | 0 |
| PEP | 59 | 3107057 | -4 |
| Average | 56.5 | 3533416 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 56.5 hedge funds with bullish positions and the average amount invested in these stocks was $3533 million. That figure was $2055 million in NVS’s case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 12 bullish hedge fund positions. Novartis AG (NYSE:NVS) 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 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on NVS as the stock returned -10.1% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
