Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Danaher Corporation (NYSE:DHR).
Danaher Corporation (NYSE:DHR) was in 75 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 76. DHR investors should be aware of a decrease in support from the world’s most elite money managers of late. There were 76 hedge funds in our database with DHR positions at the end of the second quarter. Our calculations also showed that DHR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.
Dan Loeb of Third Point
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a peek at the new hedge fund action surrounding Danaher Corporation (NYSE:DHR).
What have hedge funds been doing with Danaher Corporation (NYSE:DHR)?
Heading into the fourth quarter of 2020, a total of 75 of the hedge funds tracked by Insider Monkey were long this stock, a change of -1% from one quarter earlier. On the other hand, there were a total of 62 hedge funds with a bullish position in DHR 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.
More specifically, Third Point was the largest shareholder of Danaher Corporation (NYSE:DHR), with a stake worth $646 million reported as of the end of September. Trailing Third Point was Fisher Asset Management, which amassed a stake valued at $629.6 million. Akre Capital Management, D1 Capital Partners, and Impax Asset Management 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 Sandell Asset Management allocated the biggest weight to Danaher Corporation (NYSE:DHR), around 22.3% of its 13F portfolio. Third Point is also relatively very bullish on the stock, earmarking 6.46 percent of its 13F equity portfolio to DHR.
Judging by the fact that Danaher Corporation (NYSE:DHR) has experienced falling interest from hedge fund managers, logic holds that there lies a certain “tier” of hedgies who were dropping their entire stakes in the third quarter. At the top of the heap, Andreas Halvorsen’s Viking Global cut the largest stake of all the hedgies tracked by Insider Monkey, comprising an estimated $159.8 million in stock, and Robert Pohly’s Samlyn Capital was right behind this move, as the fund dropped about $55.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Danaher Corporation (NYSE:DHR) but similarly valued. We will take a look at Amgen, Inc. (NASDAQ:AMGN), Broadcom Inc (NASDAQ:AVGO), Exxon Mobil Corporation (NYSE:XOM), United Parcel Service, Inc. (NYSE:UPS), T-Mobile US, Inc. (NYSE:TMUS), Accenture Plc (NYSE:ACN), and AstraZeneca plc (NYSE:AZN). This group of stocks’ market values match DHR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMGN | 45 | 1220712 | -6 |
| AVGO | 59 | 2374856 | 0 |
| XOM | 52 | 1380236 | -1 |
| UPS | 57 | 1731232 | 20 |
| TMUS | 94 | 7538763 | -19 |
| ACN | 46 | 1148986 | 2 |
| AZN | 33 | 2259713 | -5 |
| Average | 55.1 | 2522071 | -1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 55.1 hedge funds with bullish positions and the average amount invested in these stocks was $2522 million. That figure was $4703 million in DHR’s case. T-Mobile US, Inc. (NYSE:TMUS) is the most popular stock in this table. On the other hand AstraZeneca plc (NYSE:AZN) is the least popular one with only 33 bullish hedge fund positions. Danaher Corporation (NYSE:DHR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DHR is 68. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and beat the market again by 16.1 percentage points. Unfortunately DHR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DHR were disappointed as the stock returned 0.7% since the end of September (through 11/27) 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.
Follow Danaher Corp (NYSE:DHR)
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Disclosure: None. This article was originally published at Insider Monkey.
