Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Pfizer Inc. (NYSE:PFE).
Pfizer Inc. (NYSE:PFE) was in 55 hedge funds’ portfolios at the end of the third quarter of 2019. PFE has seen an increase in hedge fund sentiment of late. There were 52 hedge funds in our database with PFE holdings at the end of the previous quarter. Our calculations also showed that PFE 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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.
Ric Dillon of Diamond Hill Capital
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 go over the key hedge fund action encompassing Pfizer Inc. (NYSE:PFE).
How are hedge funds trading Pfizer Inc. (NYSE:PFE)?
Heading into the fourth quarter of 2019, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the second quarter of 2019. On the other hand, there were a total of 58 hedge funds with a bullish position in PFE a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Pfizer Inc. (NYSE:PFE), with a stake worth $1627.3 million reported as of the end of September. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $466.1 million. Diamond Hill Capital, Two Sigma Advisors, and Adage Capital 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 Kahn Brothers allocated the biggest weight to Pfizer Inc. (NYSE:PFE), around 3.66% of its portfolio. Sio Capital is also relatively very bullish on the stock, setting aside 3.31 percent of its 13F equity portfolio to PFE.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Marshall Wace, managed by Paul Marshall and Ian Wace, created the most outsized position in Pfizer Inc. (NYSE:PFE). Marshall Wace had $45.2 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also made a $12 million investment in the stock during the quarter. The following funds were also among the new PFE investors: Michael Castor’s Sio Capital, Peter Muller’s PDT Partners, and Donald Sussman’s Paloma Partners.
Let’s also examine hedge fund activity in other stocks similar to Pfizer Inc. (NYSE:PFE). We will take a look at PepsiCo, Inc. (NASDAQ:PEP), Toyota Motor Corporation (NYSE:TM), Anheuser-Busch InBev SA/NV (NYSE:BUD), and Oracle Corporation (NYSE:ORCL). All of these stocks’ market caps match PFE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PEP | 57 | 3744859 | 2 |
| TM | 11 | 243035 | 3 |
| BUD | 19 | 1800212 | 1 |
| ORCL | 50 | 4360689 | -11 |
| Average | 34.25 | 2537199 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $2537 million. That figure was $3768 million in PFE’s case. PepsiCo, Inc. (NASDAQ: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. Pfizer Inc. (NYSE:PFE) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on PFE, though not to the same extent, as the stock returned 8.2% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
