Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. 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 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Novartis AG (NYSE:NVS) has experienced a decrease in hedge fund sentiment recently. NVS was in 28 hedge funds’ portfolios at the end of September. There were 30 hedge funds in our database with NVS holdings at the end of the previous quarter. Our calculations also showed that NVS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are a large number of tools stock traders have at their disposal to analyze stocks. A pair of the less known tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the elite fund managers can outclass the broader indices by a solid margin (see the details here).
Steven Cohen of Point72 Asset Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the new hedge fund action surrounding Novartis AG (NYSE:NVS).
What does smart money think about Novartis AG (NYSE:NVS)?
At Q3’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in NVS over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Novartis AG (NYSE:NVS), which was worth $722.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $452.3 million worth of shares. Arrowstreet Capital, Partner Fund Management, and Point72 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 Bourgeon Capital allocated the biggest weight to Novartis AG (NYSE:NVS), around 2.66% of its portfolio. Sectoral Asset Management is also relatively very bullish on the stock, earmarking 2.22 percent of its 13F equity portfolio to NVS.
Because Novartis AG (NYSE:NVS) has experienced falling interest from the smart money, we can see that there were a few funds who sold off their positions entirely last quarter. At the top of the heap, Robert Pohly’s Samlyn Capital cut the largest position of the “upper crust” of funds followed by Insider Monkey, totaling about $39.5 million in call options, and Israel Englander’s Millennium Management was right behind this move, as the fund said goodbye to about $36.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Novartis AG (NYSE:NVS) but similarly valued. These stocks are Pfizer Inc. (NYSE:PFE), PepsiCo, Inc. (NASDAQ:PEP), Toyota Motor Corporation (NYSE:TM), and Anheuser-Busch InBev SA/NV (NYSE:BUD). This group of stocks’ market values are closest to NVS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PFE | 55 | 3767946 | 3 |
| PEP | 57 | 3744859 | 2 |
| TM | 11 | 243035 | 3 |
| BUD | 19 | 1800212 | 1 |
| Average | 35.5 | 2389013 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $2389 million. That figure was $1708 million in NVS’s case. PepsiCo, Inc. (NYSE:PEP) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 11 bullish hedge fund positions. Novartis AG (NYSE:NVS) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on NVS, though not to the same extent, as the stock returned 6.2% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
