Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Johnson & Johnson (NYSE:JNJ) to find out whether there were any major changes in hedge funds’ views.
Johnson & Johnson (NYSE:JNJ) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 81 hedge funds’ portfolios at the end of March. Our calculations also showed that JNJ isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Walmart Inc. (NYSE:WMT), Mastercard Incorporated (NYSE:MA), and UnitedHealth Group Inc. (NYSE:UNH) to gather more data points.
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 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Siegel of Two Sigma Advisors
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s review the key hedge fund action regarding Johnson & Johnson (NYSE:JNJ).
Do Hedge Funds Think JNJ Is A Good Stock To Buy Now?
At first quarter’s end, a total of 81 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2020. On the other hand, there were a total of 82 hedge funds with a bullish position in JNJ a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Johnson & Johnson (NYSE:JNJ), with a stake worth $1480 million reported as of the end of March. Trailing Arrowstreet Capital was Fundsmith LLP, which amassed a stake valued at $1091.4 million. AQR Capital Management, Citadel Investment Group, and Two Sigma Advisors 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 Tri Locum Partners allocated the biggest weight to Johnson & Johnson (NYSE:JNJ), around 6.87% of its 13F portfolio. Sphera Global Healthcare Fund is also relatively very bullish on the stock, dishing out 5.72 percent of its 13F equity portfolio to JNJ.
Due to the fact that Johnson & Johnson (NYSE:JNJ) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers who sold off their entire stakes in the first quarter. At the top of the heap, Arthur B Cohen and Joseph Healey’s Healthcor Management LP said goodbye to the largest stake of the “upper crust” of funds followed by Insider Monkey, worth close to $68.5 million in stock, and Bhagwan Jay Rao’s Integral Health Asset Management was right behind this move, as the fund sold off about $5.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Johnson & Johnson (NYSE:JNJ) but similarly valued. We will take a look at Walmart Inc. (NYSE:WMT), Mastercard Incorporated (NYSE:MA), UnitedHealth Group Inc. (NYSE:UNH), The Walt Disney Company (NYSE:DIS), Bank of America Corporation (NYSE:BAC), The Procter & Gamble Company (NYSE:PG), and NVIDIA Corporation (NASDAQ:NVDA). This group of stocks’ market valuations resemble JNJ’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WMT | 58 | 5881223 | -12 |
| MA | 151 | 17097200 | -3 |
| UNH | 89 | 12091302 | -2 |
| DIS | 134 | 12552763 | -10 |
| BAC | 97 | 45321286 | -2 |
| PG | 70 | 8539030 | -13 |
| NVDA | 80 | 6204940 | -8 |
| Average | 97 | 15383963 | -7.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 97 hedge funds with bullish positions and the average amount invested in these stocks was $15384 million. That figure was $6913 million in JNJ’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 58 bullish hedge fund positions. Johnson & Johnson (NYSE:JNJ) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for JNJ is 43.2. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.8% in 2021 through August 6th and surpassed the market again by 6.7 percentage points. Unfortunately JNJ wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); JNJ investors were disappointed as the stock returned 6% since the end of March (through 8/6) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.
