Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Mylan N.V. (NASDAQ:MYL) a buy here? The best stock pickers are betting on the stock. The number of long hedge fund positions inched up by 3 in recent months. Our calculations also showed that MYL 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_338852" align="alignnone" width="2480"] Richard S. Pzena of Pzena Investment Management[/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. Keeping this in mind let's check out the fresh hedge fund action regarding Mylan N.V. (NASDAQ:MYL).
How have hedgies been trading Mylan N.V. (NASDAQ:MYL)?
At the end of the third quarter, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. On the other hand, there were a total of 39 hedge funds with a bullish position in MYL 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 Mylan N.V. (NASDAQ:MYL) was held by Pzena Investment Management, which reported holding $383.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $329.4 million position. Other investors bullish on the company included Paulson & Co, Camber Capital Management, and First Pacific Advisors. In terms of the portfolio weights assigned to each position Camber Capital Management allocated the biggest weight to Mylan N.V. (NASDAQ:MYL), around 8.84% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, setting aside 6.17 percent of its 13F equity portfolio to MYL.
Consequently, key money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Mylan N.V. (NASDAQ:MYL). Arrowstreet Capital had $34.4 million invested in the company at the end of the quarter. Frank Brosens's Taconic Capital also initiated a $5.9 million position during the quarter. The other funds with new positions in the stock are Yi Xin's Ariose Capital, Bart Baum's Ionic Capital Management, and Mario Gabelli's GAMCO Investors.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Mylan N.V. (NASDAQ:MYL) but similarly valued. We will take a look at Brown & Brown, Inc. (NYSE:BRO), Tyler Technologies, Inc. (NYSE:TYL), Insulet Corporation (NASDAQ:PODD), and Altaba Inc. (NASDAQ:AABA). This group of stocks' market valuations are similar to MYL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BRO,28,810178,7 TYL,26,602875,2 PODD,37,500045,13 AABA,48,4699502,-11 Average,34.75,1653150,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $1653 million. That figure was $1719 million in MYL's case. Altaba Inc. (NASDAQ:AABA) is the most popular stock in this table. On the other hand Tyler Technologies, Inc. (NYSE:TYL) is the least popular one with only 26 bullish hedge fund positions. Mylan N.V. (NASDAQ:MYL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 MYL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MYL investors were disappointed as the stock returned -27.3% in 2019 (as of 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019. 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.