We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Merck & Co., Inc. (NYSE:MRK) and determine whether hedge funds skillfully traded this stock.
Is Merck & Co., Inc. (NYSE:MRK) a buy here? The smart money was reducing their bets on the stock. The number of long hedge fund bets dropped by 2 in recent months. Merck & Co., Inc. (NYSE:MRK) was in 77 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 84. Our calculations also showed that MRK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Robert Pohly of Samlyn Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Now let’s take a gander at the recent hedge fund action encompassing Merck & Co., Inc. (NYSE:MRK).
Do Hedge Funds Think MRK Is A Good Stock To Buy Now?
At the end of September, a total of 77 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from one quarter earlier. On the other hand, there were a total of 80 hedge funds with a bullish position in MRK a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fisher Asset Management held the most valuable stake in Merck & Co., Inc. (NYSE:MRK), which was worth $798.7 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $493.3 million worth of shares. Two Sigma Advisors, AQR Capital Management, and Citadel Investment Group 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 Kahn Brothers allocated the biggest weight to Merck & Co., Inc. (NYSE:MRK), around 7.47% of its 13F portfolio. Healthcare Value Capital is also relatively very bullish on the stock, setting aside 5.93 percent of its 13F equity portfolio to MRK.
Since Merck & Co., Inc. (NYSE:MRK) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers that elected to cut their full holdings last quarter. Intriguingly, Warren Buffett’s Berkshire Hathaway sold off the biggest position of all the hedgies watched by Insider Monkey, totaling close to $712.2 million in stock. Chris Rokos’s fund, Rokos Capital Management, also sold off its stock, about $76.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Merck & Co., Inc. (NYSE:MRK). We will take a look at AstraZeneca plc (NYSE:AZN), Novartis AG (NYSE:NVS), McDonald’s Corporation (NYSE:MCD), Morgan Stanley (NYSE:MS), Texas Instruments Incorporated (NASDAQ:TXN), Sea Limited (NYSE:SE), and Shopify Inc (NYSE:SHOP). This group of stocks’ market valuations are similar to MRK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AZN | 41 | 3757394 | 4 |
| NVS | 22 | 1439973 | 0 |
| MCD | 58 | 3339098 | -8 |
| MS | 65 | 4990950 | -4 |
| TXN | 40 | 1938965 | -10 |
| SE | 117 | 14135309 | 13 |
| SHOP | 73 | 11451372 | -12 |
| Average | 59.4 | 5864723 | -2.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 59.4 hedge funds with bullish positions and the average amount invested in these stocks was $5865 million. That figure was $4551 million in MRK’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 22 bullish hedge fund positions. Merck & Co., Inc. (NYSE:MRK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MRK is 59.4. 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 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 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on MRK as the stock returned 9.5% since the end of Q3 (through 1/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Merck & Co. Inc. (NYSE:MRK)
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Disclosure: None. This article was originally published at Insider Monkey.
