Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Eli Lilly and Company (NYSE:LLY).
Is Eli Lilly and Company (NYSE:LLY) undervalued? The smart money is selling. The number of long hedge fund bets decreased by 1 in recent months. Our calculations also showed that LLY 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).
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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely 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 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 we’re going to go over the latest hedge fund action regarding Eli Lilly and Company (NYSE:LLY).
What does smart money think about Eli Lilly and Company (NYSE:LLY)?
At the end of the fourth quarter, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards LLY over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fisher Asset Management was the largest shareholder of Eli Lilly and Company (NYSE:LLY), with a stake worth $579.9 million reported as of the end of September. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $329.4 million. Two Sigma Advisors, Citadel Investment Group, 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 Integral Health Asset Management allocated the biggest weight to Eli Lilly and Company (NYSE:LLY), around 2.56% of its 13F portfolio. Sivik Global Healthcare is also relatively very bullish on the stock, setting aside 2.44 percent of its 13F equity portfolio to LLY.
Because Eli Lilly and Company (NYSE:LLY) has witnessed falling interest from the smart money, it’s safe to say that there exists a select few fund managers that elected to cut their positions entirely last quarter. Intriguingly, Benjamin A. Smith’s Laurion Capital Management dumped the biggest investment of the 750 funds followed by Insider Monkey, comprising close to $39.1 million in stock, and Renaissance Technologies was right behind this move, as the fund said goodbye to about $18.2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Eli Lilly and Company (NYSE:LLY) but similarly valued. We will take a look at Sanofi (NASDAQ:SNY), Broadcom Inc (NASDAQ:AVGO), Union Pacific Corporation (NYSE:UNP), and ASML Holding N.V. (NASDAQ:ASML). This group of stocks’ market caps are closest to LLY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNY | 31 | 1113585 | 3 |
| AVGO | 61 | 2513808 | 2 |
| UNP | 65 | 5313051 | -4 |
| ASML | 22 | 1133071 | 7 |
| Average | 44.75 | 2518379 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 44.75 hedge funds with bullish positions and the average amount invested in these stocks was $2518 million. That figure was $1493 million in LLY’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 22 bullish hedge fund positions. Eli Lilly and Company (NYSE:LLY) is not the least popular stock in this group but hedge fund interest is still below average. 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 but still beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on LLY as the stock returned 17.5% during the same time period and outperformed the market by an even larger margin.
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.
