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Eli Lilly and Company (LLY) Doesn’t Excite Hedge Funds

Asma UL Husna

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Eli Lilly and Company (NYSE:LLY) based on those filings.

Hedge fund interest in Eli Lilly and Company (NYSE:LLY) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare LLY to other stocks including The Unilever Group (NYSE:UL), SAP SE (NYSE:SAP), and NIKE, Inc. (NYSE:NKE) to get a better sense of its popularity. Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26562" align="aligncenter" width="359"] Ray Dalio of Bridgewater Associates[/caption]

BRIDGEWATER ASSOCIATES

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's analyze the latest hedge fund action surrounding Eli Lilly and Company (NYSE:LLY).

What have hedge funds been doing with Eli Lilly and Company (NYSE:LLY)?

Heading into the second quarter of 2020, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 44 hedge funds held shares or bullish call options in LLY a year ago. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

The largest stake in Eli Lilly and Company (NYSE:LLY) was held by Fisher Asset Management, which reported holding $601.3 million worth of stock at the end of September. It was followed by AQR Capital Management with a $198.6 million position. Other investors bullish on the company included Two Sigma Advisors, Adage Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Sustainable Insight Capital Management allocated the biggest weight to Eli Lilly and Company (NYSE:LLY), around 4.87% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, earmarking 3.55 percent of its 13F equity portfolio to LLY.

Since Eli Lilly and Company (NYSE:LLY) has faced bearish sentiment from hedge fund managers, logic holds that there is a sect of money managers that decided to sell off their entire stakes by the end of the third quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management cut the largest position of the 750 funds followed by Insider Monkey, totaling about $76.4 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also said goodbye to its stock, about $51.3 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Eli Lilly and Company (NYSE:LLY) but similarly valued. These stocks are The Unilever Group (NYSE:UL), SAP SE (NYSE:SAP), NIKE, Inc. (NYSE:NKE), and salesforce.com, inc. (NYSE:CRM). This group of stocks' market values are similar to LLY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UL,13,207786,-4 SAP,15,1386317,-1 NKE,80,2172472,-1 CRM,117,7122915,5 Average,56.25,2722373,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 56.25 hedge funds with bullish positions and the average amount invested in these stocks was $2722 million. That figure was $1323 million in LLY's case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand The Unilever Group (NYSE:UL) is the least popular one with only 13 bullish hedge fund positions. Eli Lilly and Company (NYSE:LLY) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately LLY wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LLY investors were disappointed as the stock returned 10.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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