Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds' moves.
Amgen, Inc. (NASDAQ:AMGN) was in 42 hedge funds' portfolios at the end of the second quarter of 2019. AMGN investors should pay attention to a decrease in hedge fund sentiment lately. There were 46 hedge funds in our database with AMGN holdings at the end of the previous quarter. Our calculations also showed that AMGN isn't among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a glance at the latest hedge fund action encompassing Amgen, Inc. (NASDAQ:AMGN).
How have hedgies been trading Amgen, Inc. (NASDAQ:AMGN)?
Heading into the third quarter of 2019, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in AMGN over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Amgen, Inc. (NASDAQ:AMGN) was held by Renaissance Technologies, which reported holding $546.1 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $491 million position. Other investors bullish on the company included Arrowstreet Capital, AQR Capital Management, and D E Shaw.
Since Amgen, Inc. (NASDAQ:AMGN) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers that slashed their entire stakes last quarter. At the top of the heap, D. E. Shaw's D E Shaw sold off the biggest investment of the 750 funds followed by Insider Monkey, comprising an estimated $7.6 million in call options, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund said goodbye to about $7.6 million worth. These moves are interesting, as total hedge fund interest was cut by 4 funds last quarter.
Let's now review hedge fund activity in other stocks similar to Amgen, Inc. (NASDAQ:AMGN). We will take a look at Eli Lilly and Company (NYSE:LLY), Linde plc (NYSE:LIN), AbbVie Inc (NYSE:ABBV), and Sanofi (NASDAQ:SNY). All of these stocks' market caps match AMGN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LLY,43,1872480,-1 LIN,41,1865465,4 ABBV,55,4126440,8 SNY,25,914861,-1 Average,41,2194812,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $2195 million. That figure was $2626 million in AMGN's case. AbbVie Inc (NYSE:ABBV) is the most popular stock in this table. On the other hand Sanofi (NASDAQ:SNY) is the least popular one with only 25 bullish hedge fund positions. Amgen, Inc. (NASDAQ:AMGN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on AMGN, though not to the same extent, as the stock returned 5.8% during the third quarter and outperformed the market as well. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.