Were Hedge Funds Wrong About Edwards Lifesciences Corporation (EW)?

In this article we will take a look at whether hedge funds think Edwards Lifesciences Corporation (NYSE:EW) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Edwards Lifesciences Corporation (NYSE:EW) a good investment now? Investors who are in the know were getting less bullish. The number of long hedge fund bets fell by 4 recently. Edwards Lifesciences Corporation (NYSE:EW) was in 45 hedge funds’ portfolios at the end of June. The all time high for this statistics is 49. Our calculations also showed that EW 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). There were 49 hedge funds in our database with EW positions at the end of the first quarter.

Video: 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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

Lee Ainslie of Maverick 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 we’re going to take a look at the new hedge fund action surrounding Edwards Lifesciences Corporation (NYSE:EW).

How are hedge funds trading Edwards Lifesciences Corporation (NYSE:EW)?

At second quarter’s end, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in EW a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ken Fisher’s Fisher Asset Management has the largest position in Edwards Lifesciences Corporation (NYSE:EW), worth close to $344.7 million, comprising 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is Cliff Asness of AQR Capital Management, with a $149.4 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions include John Overdeck and David Siegel’s Two Sigma Advisors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position Giverny Capital allocated the biggest weight to Edwards Lifesciences Corporation (NYSE:EW), around 2.56% of its 13F portfolio. Parkman Healthcare Partners is also relatively very bullish on the stock, designating 2.34 percent of its 13F equity portfolio to EW.

Judging by the fact that Edwards Lifesciences Corporation (NYSE:EW) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of money managers that slashed their entire stakes heading into Q3. It’s worth mentioning that Nicolai Tangen’s Ako Capital cut the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at about $142.1 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund dumped about $17 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to Edwards Lifesciences Corporation (NYSE:EW). These stocks are Baxter International Inc. (NYSE:BAX), Itau Unibanco Holding SA (NYSE:ITUB), Biogen Inc. (NASDAQ:BIIB), The Charles Schwab Corporation (NYSE:SCHW), General Dynamics Corporation (NYSE:GD), Vodafone Group Plc (NASDAQ:VOD), and National Grid plc (NYSE:NGG). All of these stocks’ market caps are closest to EW’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $2307 million. That figure was $1391 million in EW’s case. The Charles Schwab Corporation (NYSE:SCHW) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 2 bullish hedge fund positions. Edwards Lifesciences Corporation (NYSE:EW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EW is 59.7. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on EW as the stock returned 16.4% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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