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Is Edwards Lifesciences Corporation (EW) Going to Burn These Hedge Funds?

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Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Edwards Lifesciences Corporation (NYSE:EW).

Edwards Lifesciences Corporation (NYSE:EW) was in 47 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 49. EW shareholders have witnessed an increase in support from the world's most elite money managers of late. There were 36 hedge funds in our database with EW positions at the end of the first quarter. Our calculations also showed that EW isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by 79 percentage points since March 2017 (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.

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's take a look at the recent hedge fund action surrounding Edwards Lifesciences Corporation (NYSE:EW).

Do Hedge Funds Think EW Is A Good Stock To Buy Now?

At second quarter's end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 31% from the previous quarter. By comparison, 45 hedge funds held shares or bullish call options in EW 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.

According to Insider Monkey's hedge fund database, Fisher Asset Management, managed by Ken Fisher, holds the biggest position in Edwards Lifesciences Corporation (NYSE:EW). Fisher Asset Management has a $637.7 million position in the stock, comprising 0.4% of its 13F portfolio. The second largest stake is held by Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $153 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions encompass Noam Gottesman's GLG Partners, Daniel Sundheim's D1 Capital Partners and OrbiMed Advisors. In terms of the portfolio weights assigned to each position 11 Capital Partners allocated the biggest weight to Edwards Lifesciences Corporation (NYSE:EW), around 3.2% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, setting aside 2.55 percent of its 13F equity portfolio to EW.

As industrywide interest jumped, key hedge funds were leading the bulls' herd. Holocene Advisors, managed by Brandon Haley, established the most valuable position in Edwards Lifesciences Corporation (NYSE:EW). Holocene Advisors had $77.9 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $66.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Brandon Haley's Holocene Advisors, Michael Rockefeller and KarláKroeker's Woodline Partners, and Bhagwan Jay Rao's Integral Health Asset Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Edwards Lifesciences Corporation (NYSE:EW) but similarly valued. These stocks are Atlassian Corporation Plc (NASDAQ:TEAM), Autodesk, Inc. (NASDAQ:ADSK), The Southern Company (NYSE:SO), Air Products & Chemicals, Inc. (NYSE:APD), Analog Devices, Inc. (NASDAQ:ADI), Stellantis N.V. (NYSE:STLA), and Banco Santander (Brasil) SA (NYSE:BSBR). This group of stocks' market values are closest to EW's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TEAM,64,4170236,-3 ADSK,64,3201341,-2 SO,37,606405,2 APD,40,456440,8 ADI,62,5796275,12 STLA,28,844328,7 BSBR,7,9630,2 Average,43.1,2154951,3.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.1 hedge funds with bullish positions and the average amount invested in these stocks was $2155 million. That figure was $2043 million in EW's case. Atlassian Corporation Plc (NASDAQ:TEAM) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (NYSE:BSBR) is the least popular one with only 7 bullish hedge fund positions. Edwards Lifesciences Corporation (NYSE:EW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EW is 73.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on EW as the stock returned 8.4% since the end of Q2 (through 10/1) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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