Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Elanco Animal Health Incorporated (NYSE:ELAN).
Elanco Animal Health Incorporated (NYSE:ELAN) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Our calculations also showed that ELAN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Steven Cohen of Point72 Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Now let’s go over the key hedge fund action surrounding Elanco Animal Health Incorporated (NYSE:ELAN).
Hedge fund activity in Elanco Animal Health Incorporated (NYSE:ELAN)
At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in ELAN over the last 18 quarters. 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, Point72 Asset Management was the largest shareholder of Elanco Animal Health Incorporated (NYSE:ELAN), with a stake worth $108.3 million reported as of the end of September. Trailing Point72 Asset Management was Sirios Capital Management, which amassed a stake valued at $107.6 million. D E Shaw, Glenview Capital, and Arrowstreet 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 Sirios Capital Management allocated the biggest weight to Elanco Animal Health Incorporated (NYSE:ELAN), around 6.93% of its 13F portfolio. Crescent Park Management is also relatively very bullish on the stock, earmarking 6.28 percent of its 13F equity portfolio to ELAN.
Seeing as Elanco Animal Health Incorporated (NYSE:ELAN) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there were a few hedgies that slashed their entire stakes heading into Q4. Intriguingly, Ian Simm’s Impax Asset Management sold off the largest position of all the hedgies followed by Insider Monkey, totaling an estimated $8.5 million in stock, and David MacKnight’s One Fin Capital Management was right behind this move, as the fund said goodbye to about $5.6 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Elanco Animal Health Incorporated (NYSE:ELAN) but similarly valued. These stocks are LKQ Corporation (NASDAQ:LKQ), Avery Dennison Corporation (NYSE:AVY), Medical Properties Trust, Inc. (NYSE:MPW), and Marathon Oil Corporation (NYSE:MRO). This group of stocks’ market caps match ELAN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LKQ | 52 | 1559414 | 9 |
| AVY | 22 | 105570 | -3 |
| MPW | 14 | 186041 | 2 |
| MRO | 30 | 448735 | -7 |
| Average | 29.5 | 574940 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $575 million. That figure was $621 million in ELAN’s case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand Medical Properties Trust, Inc. (NYSE:MPW) is the least popular one with only 14 bullish hedge fund positions. Elanco Animal Health Incorporated (NYSE:ELAN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately ELAN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ELAN investors were disappointed as the stock returned -34.3% during the same time period 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
