Were Hedge Funds Right About Medtronic plc (MDT)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Medtronic plc (NYSE:MDT).

Medtronic plc (NYSE:MDT) was in 58 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 66. MDT has experienced a decrease in activity from the world’s largest hedge funds recently. There were 59 hedge funds in our database with MDT positions at the end of the first quarter. Our calculations also showed that MDT isn’t 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are plenty of metrics market participants employ to assess their stock investments. A couple of the most useful metrics are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the elite investment managers can outpace the broader indices by a very impressive margin (see the details here).

Ric Dillon of Diamond Hill 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. With all of this in mind let’s review the latest hedge fund action surrounding Medtronic plc (NYSE:MDT).

How are hedge funds trading Medtronic plc (NYSE:MDT)?

At the end of June, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in MDT over the last 20 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

More specifically, Diamond Hill Capital was the largest shareholder of Medtronic plc (NYSE:MDT), with a stake worth $336.8 million reported as of the end of September. Trailing Diamond Hill Capital was D E Shaw, which amassed a stake valued at $283.9 million. Citadel Investment Group, AQR Capital Management, and Renaissance Technologies 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 Tamarack Capital Management allocated the biggest weight to Medtronic plc (NYSE:MDT), around 3.83% of its 13F portfolio. Healthcor Management LP is also relatively very bullish on the stock, designating 3.52 percent of its 13F equity portfolio to MDT.

Since Medtronic plc (NYSE:MDT) has witnessed declining sentiment from hedge fund managers, logic holds that there exists a select few hedge funds that decided to sell off their positions entirely by the end of the second quarter. Interestingly, Anand Parekh’s Alyeska Investment Group said goodbye to the largest stake of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $46.2 million in stock, and Michael Lowenstein’s Kensico Capital was right behind this move, as the fund sold off about $22.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks similar to Medtronic plc (NYSE:MDT). We will take a look at Royal Dutch Shell plc (NYSE:RDS), NextEra Energy, Inc. (NYSE:NEE), Texas Instruments Incorporated (NASDAQ:TXN), Union Pacific Corporation (NYSE:UNP), American Tower Corporation (NYSE:AMT), Shopify Inc (NYSE:SHOP), and Linde plc (NYSE:LIN). This group of stocks’ market valuations are closest to MDT’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 54.6 hedge funds with bullish positions and the average amount invested in these stocks was $3270 million. That figure was $2705 million in MDT’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand Royal Dutch Shell plc (NYSE:RDS) is the least popular one with only 34 bullish hedge fund positions. Medtronic plc (NYSE:MDT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MDT is 65.7. 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. 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 still beat the market by 19.7 percentage points. Hedge funds were also right about betting on MDT as the stock returned 20.8% since the end of Q2 (through 10/16) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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