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Did Hedge Funds Drop The Ball On Bausch Health Companies (BHC) ?

Reymerlyn Martin

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Bausch Health Companies (NYSE:BHC).

Bausch Health Companies (NYSE:BHC) was in 32 hedge funds' portfolios at the end of September. BHC investors should pay attention to an increase in activity from the world's largest hedge funds recently. There were 31 hedge funds in our database with BHC holdings at the end of the previous quarter. Our calculations also showed that BHC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

[caption id="attachment_25305" align="aligncenter" width="600"] John Paulson of Paulson & Co[/caption]

PAULSON & CO

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to check out the key hedge fund action surrounding Bausch Health Companies (NYSE:BHC).

How are hedge funds trading Bausch Health Companies (NYSE:BHC)?

At Q3's end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards BHC over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

BHC_dec2019

The largest stake in Bausch Health Companies (NYSE:BHC) was held by Paulson & Co, which reported holding $455.3 million worth of stock at the end of September. It was followed by ValueAct Capital with a $391.8 million position. Other investors bullish on the company included Glenview Capital, GoldenTree Asset Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Chou Associates Management allocated the biggest weight to Bausch Health Companies (NYSE:BHC), around 21.99% of its portfolio. GoldenTree Asset Management is also relatively very bullish on the stock, earmarking 21.49 percent of its 13F equity portfolio to BHC.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. PEAK6 Capital Management, managed by Matthew Hulsizer, assembled the largest position in Bausch Health Companies (NYSE:BHC). PEAK6 Capital Management had $3.7 million invested in the company at the end of the quarter. Peter Muller's PDT Partners also initiated a $2.7 million position during the quarter. The other funds with new positions in the stock are Minhua Zhang's Weld Capital Management, Donald Sussman's Paloma Partners, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.

Let's go over hedge fund activity in other stocks similar to Bausch Health Companies (NYSE:BHC). We will take a look at Voya Financial Inc (NYSE:VOYA), Liberty Property Trust (NYSE:LPT), Perrigo Company (NYSE:PRGO), and ServiceMaster Global Holdings Inc (NYSE:SERV). This group of stocks' market values are closest to BHC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VOYA,37,1076870,-6 LPT,29,576112,10 PRGO,15,453537,-6 SERV,26,927792,-4 Average,26.75,758578,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $759 million. That figure was $1808 million in BHC's case. Voya Financial Inc (NYSE:VOYA) is the most popular stock in this table. On the other hand Perrigo Company (NYSE:PRGO) is the least popular one with only 15 bullish hedge fund positions. Bausch Health Companies (NYSE:BHC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on BHC as the stock returned 29.2% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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