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 57% each. Hedge funds' top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by nearly 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Boston Scientific Corporation (NYSE:BSX).
Is Boston Scientific Corporation (NYSE:BSX) a bargain? The smart money is reducing their bets on the stock. The number of long hedge fund bets were trimmed by 2 recently. Our calculations also showed that BSX 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).
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_26082" align="alignnone" width="600"] Andreas Halvorsen of Viking Global[/caption]
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. With all of this in mind we're going to take a look at the fresh hedge fund action encompassing Boston Scientific Corporation (NYSE:BSX).
What does smart money think about Boston Scientific Corporation (NYSE:BSX)?
Heading into the fourth quarter of 2019, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 45 hedge funds with a bullish position in BSX a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Viking Global was the largest shareholder of Boston Scientific Corporation (NYSE:BSX), with a stake worth $423.8 million reported as of the end of September. Trailing Viking Global was Marshall Wace, which amassed a stake valued at $344.4 million. Citadel Investment Group, OrbiMed Advisors, and Third Point 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 Grisanti Brown & Partners allocated the biggest weight to Boston Scientific Corporation (NYSE:BSX), around 4.4% of its 13F portfolio. Blue Pool Capital is also relatively very bullish on the stock, setting aside 4.29 percent of its 13F equity portfolio to BSX.
Seeing as Boston Scientific Corporation (NYSE:BSX) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there exists a select few hedgies who were dropping their entire stakes in the third quarter. It's worth mentioning that Benjamin A. Smith's Laurion Capital Management cut the biggest position of the "upper crust" of funds watched by Insider Monkey, comprising close to $41.7 million in stock, and Per Johansson's Bodenholm Capital was right behind this move, as the fund sold off about $30.1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds in the third quarter.
Let's check out hedge fund activity in other stocks similar to Boston Scientific Corporation (NYSE:BSX). These stocks are Eni SpA (NYSE:E), CSX Corporation (NYSE:CSX), Allergan plc (NYSE:AGN), and Charles Schwab Corp (NYSE:SCHW). All of these stocks' market caps match BSX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position E,5,58328,0 CSX,38,4002726,-8 AGN,81,8207290,1 SCHW,52,3125721,4 Average,44,3848516,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $3849 million. That figure was $2372 million in BSX's case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 5 bullish hedge fund positions. Boston Scientific Corporation (NYSE:BSX) 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 BSX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on BSX were disappointed as the stock returned 28% 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.
Disclosure: None. This article was originally published at Insider Monkey.