We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of December. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Mylan N.V. (NASDAQ:MYL), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Mylan N.V. (NASDAQ:MYL) has seen an increase in hedge fund sentiment lately. Our calculations also showed that MYL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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.
John Paulson of Paulson & Co
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, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s review the latest hedge fund action regarding Mylan N.V. (NASDAQ:MYL).
What have hedge funds been doing with Mylan N.V. (NASDAQ:MYL)?
At the end of the fourth quarter, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 34% from one quarter earlier. On the other hand, there were a total of 42 hedge funds with a bullish position in MYL a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Richard S. Pzena’s Pzena Investment Management has the most valuable position in Mylan N.V. (NASDAQ:MYL), worth close to $417.7 million, corresponding to 2% of its total 13F portfolio. Sitting at the No. 2 spot is Paulson & Co, led by John Paulson, holding a $241.3 million position; the fund has 5.2% of its 13F portfolio invested in the stock. Remaining peers that hold long positions consist of Cliff Asness’s AQR Capital Management, Stephen DuBois’s Camber Capital Management and James E. Flynn’s Deerfield Management. In terms of the portfolio weights assigned to each position Courage Capital allocated the biggest weight to Mylan N.V. (NASDAQ:MYL), around 10.64% of its 13F portfolio. Camber Capital Management is also relatively very bullish on the stock, dishing out 8.95 percent of its 13F equity portfolio to MYL.
As aggregate interest increased, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the largest position in Mylan N.V. (NASDAQ:MYL). Marshall Wace LLP had $14.5 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also initiated a $14.2 million position during the quarter. The other funds with new positions in the stock are Andrew Kurita’s Kettle Hill Capital Management, Alec Litowitz and Ross Laser’s Magnetar Capital, and Renaissance Technologies.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Mylan N.V. (NASDAQ:MYL) but similarly valued. We will take a look at Comerica Incorporated (NYSE:CMA), Tradeweb Markets Inc. (NASDAQ:TW), Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS), and Camden Property Trust (NYSE:CPT). This group of stocks’ market valuations resemble MYL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMA | 36 | 542380 | 4 |
| TW | 36 | 566781 | -2 |
| SBS | 12 | 446923 | 1 |
| CPT | 31 | 471165 | 9 |
| Average | 28.75 | 506812 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $507 million. That figure was $1849 million in MYL’s case. Comerica Incorporated (NYSE:CMA) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico do Estado de Sao Paulo – SABESP (NYSE:SBS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Mylan N.V. (NASDAQ:MYL) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately MYL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MYL were disappointed as the stock returned -19.8% during the four months of 2020 (through May 1st) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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.
