Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Biogen Inc. (NASDAQ:BIIB).
Is Biogen Inc. (NASDAQ:BIIB) the right pick for your portfolio? The smart money is taking a bullish view. The number of bullish hedge fund positions increased by 5 recently. Our calculations also showed that BIIB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 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 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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a peek at the key hedge fund action regarding Biogen Inc. (NASDAQ:BIIB).
How have hedgies been trading Biogen Inc. (NASDAQ:BIIB)?
At Q3’s end, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BIIB over the last 17 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the biggest position in Biogen Inc. (NASDAQ:BIIB), worth close to $982.8 million, comprising 0.8% of its total 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, led by Cliff Asness, holding a $815.2 million position; the fund has 1% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include David E. Shaw’s D E Shaw, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Sarissa Capital Management allocated the biggest weight to Biogen Inc. (NASDAQ:BIIB), around 18.76% of its 13F portfolio. Camber Capital Management is also relatively very bullish on the stock, earmarking 4.29 percent of its 13F equity portfolio to BIIB.
As industrywide interest jumped, key money managers were breaking ground themselves. Healthcor Management, managed by Arthur B Cohen and Joseph Healey, initiated the most valuable call position in Biogen Inc. (NASDAQ:BIIB). Healthcor Management had $128.1 million invested in the company at the end of the quarter. Arthur B Cohen and Joseph Healey’s Healthcor Management also made a $83.1 million investment in the stock during the quarter. The other funds with brand new BIIB positions are Stephen DuBois’s Camber Capital Management, Michael Gelband’s ExodusPoint Capital, and Karim Abbadi and Edward McBride’s Centiva Capital.
Let’s also examine hedge fund activity in other stocks similar to Biogen Inc. (NASDAQ:BIIB). We will take a look at Public Storage (NYSE:PSA), Capital One Financial Corp. (NYSE:COF), The Bank of New York Mellon Corporation (NYSE:BK), and ABB Ltd (NYSE:ABB). All of these stocks’ market caps resemble BIIB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PSA | 22 | 876105 | 2 |
| COF | 42 | 1936605 | 0 |
| BK | 50 | 5638516 | 17 |
| ABB | 13 | 325803 | 0 |
| Average | 31.75 | 2194257 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $2194 million. That figure was $4207 million in BIIB’s case. The Bank of New York Mellon Corporation (NYSE:BK) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 13 bullish hedge fund positions. Biogen Inc. (NASDAQ:BIIB) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately BIIB wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on BIIB were disappointed as the stock returned 0.2% in 2019 (through December 23rd) 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
