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2019 Review: Top Hedge Fund Stocks vs. AmerisourceBergen Corporation (ABC)

Abigail Fisher

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in AmerisourceBergen Corporation (NYSE:ABC).

AmerisourceBergen Corporation (NYSE:ABC) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 36 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare ABC to other stocks including Franco-Nevada Corporation (NYSE:FNV), Yum China Holdings, Inc. (NYSE:YUMC), and Martin Marietta Materials, Inc. (NYSE:MLM) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_315176" align="aligncenter" width="450"] Michael Castor of Sio Capital[/caption]

Michael Castor of Sio Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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. We even check out this option genius' weekly trade ideas. 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 already gained 20 percent. Now let's take a look at the recent hedge fund action regarding AmerisourceBergen Corporation (NYSE:ABC).

Hedge fund activity in AmerisourceBergen Corporation (NYSE:ABC)

Heading into the fourth quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. By comparison, 32 hedge funds held shares or bullish call options in ABC a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in AmerisourceBergen Corporation (NYSE:ABC) was held by Glenview Capital, which reported holding $103.8 million worth of stock at the end of September. It was followed by Baupost Group with a $96 million position. Other investors bullish on the company included Bridgewater Associates, AQR Capital Management, and GLG Partners. In terms of the portfolio weights assigned to each position Healthcare Value Capital allocated the biggest weight to AmerisourceBergen Corporation (NYSE:ABC), around 2.97% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, setting aside 2.73 percent of its 13F equity portfolio to ABC.

Seeing as AmerisourceBergen Corporation (NYSE:ABC) has experienced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there were a few hedge funds who were dropping their full holdings in the third quarter. It's worth mentioning that Israel Englander's Millennium Management sold off the largest stake of the "upper crust" of funds followed by Insider Monkey, totaling about $40.6 million in stock, and Clint Carlson's Carlson Capital was right behind this move, as the fund dumped about $15.7 million worth. These bearish behaviors are important to note, as aggregate 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 AmerisourceBergen Corporation (NYSE:ABC) but similarly valued. We will take a look at Franco-Nevada Corporation (NYSE:FNV), Yum China Holdings, Inc. (NYSE:YUMC), Martin Marietta Materials, Inc. (NYSE:MLM), and Omnicom Group Inc. (NYSE:OMC). This group of stocks' market caps resemble ABC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FNV,22,750908,4 YUMC,29,465970,1 MLM,40,2550137,0 OMC,24,478571,1 Average,28.75,1061397,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $1061 million. That figure was $435 million in ABC's case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand Franco-Nevada Corporation (NYSE:FNV) is the least popular one with only 22 bullish hedge fund positions. AmerisourceBergen Corporation (NYSE:ABC) 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 ABC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ABC were disappointed as the stock returned 17.3% 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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