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2019 Review: Most Favored Hedge Fund Stocks vs. Anthem Inc (ANTM)

Abigail Fisher

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds' top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That's a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Anthem Inc (NYSE:ANTM) worth your attention right now? Prominent investors are in a pessimistic mood. The number of long hedge fund positions were cut by 7 in recent months. Our calculations also showed that ANTM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

[caption id="attachment_192997" align="aligncenter" width="450"] Glenn Greenberg of Brave Warrior Capital[/caption]

Glenn Greenberg

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we're going to take a glance at the fresh hedge fund action encompassing Anthem Inc (NYSE:ANTM).

Hedge fund activity in Anthem Inc (NYSE:ANTM)

At the end of the third quarter, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ANTM over the last 17 quarters. 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, Viking Global was the largest shareholder of Anthem Inc (NYSE:ANTM), with a stake worth $930 million reported as of the end of September. Trailing Viking Global was Orbis Investment Management, which amassed a stake valued at $548.4 million. AQR Capital Management, Farallon Capital, and Glenview Capital 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 Brave Warrior Capital allocated the biggest weight to Anthem Inc (NYSE:ANTM), around 8.18% of its 13F portfolio. Viking Global is also relatively very bullish on the stock, earmarking 4.84 percent of its 13F equity portfolio to ANTM.

Judging by the fact that Anthem Inc (NYSE:ANTM) has witnessed falling interest from the smart money, it's easy to see that there were a few money managers who sold off their positions entirely last quarter. Intriguingly, Anand Parekh's Alyeska Investment Group cut the biggest stake of the "upper crust" of funds watched by Insider Monkey, totaling about $71.1 million in stock, and Jacob Doft's Highline Capital Management was right behind this move, as the fund cut about $69.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 7 funds last quarter.

Let's also examine hedge fund activity in other stocks similar to Anthem Inc (NYSE:ANTM). We will take a look at VMware, Inc. (NYSE:VMW), S&P Global Inc. (NYSE:SPGI), Zoetis Inc (NYSE:ZTS), and Vale SA (NYSE:VALE). All of these stocks' market caps are closest to ANTM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VMW,35,985185,1 SPGI,69,3925199,11 ZTS,46,2229489,6 VALE,28,1453835,7 Average,44.5,2148427,6.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.5 hedge funds with bullish positions and the average amount invested in these stocks was $2148 million. That figure was $3722 million in ANTM's case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand Vale SA (NYSE:VALE) is the least popular one with only 28 bullish hedge fund positions. Anthem Inc (NYSE:ANTM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately ANTM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ANTM were disappointed as the stock returned 16.8% in 2019 (through December 23rd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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