Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Eli Lilly and Company (NYSE:LLY) was in 44 hedge funds’ portfolios at the end of the first quarter of 2019. LLY shareholders have witnessed a decrease in support from the world’s most elite money managers of late. There were 47 hedge funds in our database with LLY holdings at the end of the previous quarter. Our calculations also showed that LLY isn’t among the 30 most popular stocks among hedge funds.
Today there are a large number of formulas shareholders put to use to analyze publicly traded companies. Two of the most underrated formulas are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the elite hedge fund managers can trounce the S&P 500 by a very impressive amount (see the details here).
Matthew Halbower -Pentwater Capital
Let’s take a look at the new hedge fund action surrounding Eli Lilly and Company (NYSE:LLY).
Hedge fund activity in Eli Lilly and Company (NYSE:LLY)
Heading into the second quarter of 2019, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2018. On the other hand, there were a total of 35 hedge funds with a bullish position in LLY 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.
The largest stake in Eli Lilly and Company (NYSE:LLY) was held by Citadel Investment Group, which reported holding $476.7 million worth of stock at the end of March. It was followed by Fisher Asset Management with a $443.7 million position. Other investors bullish on the company included AQR Capital Management, Adage Capital Management, and D E Shaw.
Judging by the fact that Eli Lilly and Company (NYSE:LLY) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there was a specific group of hedgies that decided to sell off their full holdings last quarter. At the top of the heap, Charles Lemonides’s Valueworks LLC dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling close to $66.2 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dropped its stock, about $36.9 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Eli Lilly and Company (NYSE:LLY). These stocks are International Business Machines Corp. (NYSE:IBM), Novo Nordisk A/S (NYSE:NVO), Medtronic, plc (NYSE:MDT), and salesforce.com, inc. (NYSE:CRM). This group of stocks’ market valuations resemble LLY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IBM | 46 | 2215447 | -2 |
| NVO | 25 | 2388157 | 7 |
| MDT | 50 | 2124479 | -5 |
| CRM | 93 | 5226445 | -6 |
| Average | 53.5 | 2988632 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 53.5 hedge funds with bullish positions and the average amount invested in these stocks was $2989 million. That figure was $2163 million in LLY’s case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 25 bullish hedge fund positions. Eli Lilly and Company (NYSE:LLY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately LLY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LLY investors were disappointed as the stock returned -10.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
