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. Keeping this in mind, let’s take a look at whether GlaxoSmithKline plc (NYSE:GSK) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is GlaxoSmithKline plc (NYSE:GSK) the right investment to pursue these days? Prominent investors are getting less bullish. The number of bullish hedge fund positions decreased by 1 lately. Our calculations also showed that GSK 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.
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.
Jim Simons of Renaissance Technologies
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. With all of this in mind let’s take a look at the new hedge fund action surrounding GlaxoSmithKline plc (NYSE:GSK).
Hedge fund activity in GlaxoSmithKline plc (NYSE:GSK)
At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in GSK a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in GlaxoSmithKline plc (NYSE:GSK), which was worth $894.1 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $724.3 million worth of shares. Arrowstreet Capital, Kahn Brothers, and Ariel Investments 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 Healthcare Value Capital allocated the biggest weight to GlaxoSmithKline plc (NYSE:GSK), around 13.83% of its 13F portfolio. Circle Road Advisors is also relatively very bullish on the stock, earmarking 10.97 percent of its 13F equity portfolio to GSK.
Because GlaxoSmithKline plc (NYSE:GSK) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there were a few hedgies who sold off their entire stakes in the third quarter. Interestingly, Stephen DuBois’s Camber Capital Management said goodbye to the biggest position of the 750 funds followed by Insider Monkey, valued at close to $21.3 million in stock, and Simon Sadler’s Segantii Capital was right behind this move, as the fund dropped about $4.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to GlaxoSmithKline plc (NYSE:GSK). We will take a look at HDFC Bank Limited (NYSE:HDB), Linde plc (NYSE:LIN), Royal Bank of Canada (NYSE:RY), and Lockheed Martin Corporation (NYSE:LMT). All of these stocks’ market caps match GSK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HDB | 39 | 2768292 | -2 |
| LIN | 47 | 2791217 | 1 |
| RY | 20 | 336905 | 1 |
| LMT | 47 | 1777473 | -4 |
| Average | 38.25 | 1918472 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.25 hedge funds with bullish positions and the average amount invested in these stocks was $1918 million. That figure was $2076 million in GSK’s case. Linde plc (NYSE:LIN) 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 20 bullish hedge fund positions. GlaxoSmithKline plc (NYSE:GSK) 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 beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on GSK, though not to the same extent, as the stock returned -14% during the same time period and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
