Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. 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 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Edwards Lifesciences Corporation (NYSE:EW) was in 34 hedge funds’ portfolios at the end of September. EW investors should be aware of an increase in activity from the world’s largest hedge funds lately. There were 33 hedge funds in our database with EW holdings at the end of the previous quarter. Our calculations also showed that EW 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
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 gander at the latest hedge fund action surrounding Edwards Lifesciences Corporation (NYSE:EW).
What have hedge funds been doing with Edwards Lifesciences Corporation (NYSE:EW)?
At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in EW over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Edwards Lifesciences Corporation (NYSE:EW), which was worth $228.9 million at the end of the third quarter. On the second spot was Millennium Management which amassed $178.1 million worth of shares. AQR Capital Management, Healthcor Management, and OrbiMed Advisors 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 Healthcor Management allocated the biggest weight to Edwards Lifesciences Corporation (NYSE:EW), around 5.2% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, setting aside 2.79 percent of its 13F equity portfolio to EW.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Holocene Advisors, managed by Brandon Haley, assembled the largest position in Edwards Lifesciences Corporation (NYSE:EW). Holocene Advisors had $69.7 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also made a $57.8 million investment in the stock during the quarter. The other funds with brand new EW positions are Andreas Halvorsen’s Viking Global, James Crichton’s Hitchwood Capital Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s now take a look at hedge fund activity in other stocks similar to Edwards Lifesciences Corporation (NYSE:EW). We will take a look at Aon plc (NYSE:AON), The Progressive Corporation (NYSE:PGR), Illumina, Inc. (NASDAQ:ILMN), and Baxter International Inc. (NYSE:BAX). This group of stocks’ market caps resemble EW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AON | 42 | 2479390 | 8 |
| PGR | 48 | 1562764 | -2 |
| ILMN | 37 | 1183062 | -6 |
| BAX | 33 | 2445089 | -1 |
| Average | 40 | 1917576 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1918 million. That figure was $1385 million in EW’s case. The Progressive Corporation (NYSE:PGR) is the most popular stock in this table. On the other hand Baxter International Inc. (NYSE:BAX) is the least popular one with only 33 bullish hedge fund positions. Edwards Lifesciences Corporation (NYSE:EW) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on EW as the stock returned 54.9% in 2019 through December 23rd and outperformed the market by an even larger margin.
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.
