Were Hedge Funds Right About Crowding AbbVie Inc (ABBV)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to AbbVie Inc (NYSE:ABBV) changed recently.

Is AbbVie Inc (NYSE:ABBV) undervalued? The smart money was taking a bullish view. The number of bullish hedge fund positions went up by 8 lately. AbbVie Inc (NYSE:ABBV) was in 89 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 81. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ABBV ranks 30th among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 81 hedge funds in our database with ABBV positions at the end of the first quarter.

Video: 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 S&P 500 ETFs by 58 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.

Richard Gerson of Falcon Edge Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we’re going to take a peek at the recent hedge fund action surrounding AbbVie Inc (NYSE:ABBV).

How have hedgies been trading AbbVie Inc (NYSE:ABBV)?

At the end of the second quarter, a total of 89 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the first quarter of 2020. By comparison, 55 hedge funds held shares or bullish call options in ABBV a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in AbbVie Inc (NYSE:ABBV), which was worth $1867.6 million at the end of the third quarter. On the second spot was Orbis Investment Management which amassed $1035.2 million worth of shares. AQR Capital Management, Two Sigma Advisors, and Farallon Capital 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 Copernicus Capital Management allocated the biggest weight to AbbVie Inc (NYSE:ABBV), around 11.84% of its 13F portfolio. Orbis Investment Management is also relatively very bullish on the stock, designating 7.79 percent of its 13F equity portfolio to ABBV.

As one would reasonably expect, some big names were leading the bulls’ herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, assembled the biggest position in AbbVie Inc (NYSE:ABBV). Adage Capital Management had $198.6 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $60.6 million investment in the stock during the quarter. The other funds with brand new ABBV positions are Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital, Ric Dillon’s Diamond Hill Capital, and John W. Rende’s Copernicus Capital Management.

Let’s also examine hedge fund activity in other stocks similar to AbbVie Inc (NYSE:ABBV). We will take a look at Oracle Corporation (NYSE:ORCL), salesforce.com, inc. (NYSE:CRM), SAP SE (NYSE:SAP), Chevron Corporation (NYSE:CVX), Abbott Laboratories (NYSE:ABT), Eli Lilly and Company (NYSE:LLY), and ASML Holding N.V. (NASDAQ:ASML). All of these stocks’ market caps resemble ABBV’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 52.1 hedge funds with bullish positions and the average amount invested in these stocks was $3221 million. That figure was $6227 million in ABBV’s case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 16 bullish hedge fund positions. AbbVie Inc (NYSE:ABBV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ABBV is 80.1. 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 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 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately ABBV wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ABBV were disappointed as the stock returned -9.8% since the end of June (through 10/16) 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 many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.