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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Edwards Lifesciences Corporation (NYSE:EW).
Is EW a good stock to buy now? Investors who are in the know were taking a bullish view. The number of bullish hedge fund positions went up by 1 recently. Edwards Lifesciences Corporation (NYSE:EW) was in 46 hedge funds' portfolios at the end of September. The all time high for this statistic is 49. Our calculations also showed that EW isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 66 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. 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.
Noam Gottesman of GLG Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind we're going to view the latest hedge fund action surrounding Edwards Lifesciences Corporation (NYSE:EW).
Do Hedge Funds Think EW Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in EW over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Fisher Asset Management was the largest shareholder of Edwards Lifesciences Corporation (NYSE:EW), with a stake worth $414.5 million reported as of the end of September. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $115.6 million. Holocene Advisors, GLG Partners, and D E Shaw 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 Giverny Capital allocated the biggest weight to Edwards Lifesciences Corporation (NYSE:EW), around 2.73% of its 13F portfolio. Parkman Healthcare Partners is also relatively very bullish on the stock, designating 2.59 percent of its 13F equity portfolio to EW.
Consequently, specific money managers were leading the bulls' herd. Healthcor Management LP, managed by Arthur B Cohen and Joseph Healey, initiated the most outsized position in Edwards Lifesciences Corporation (NYSE:EW). Healthcor Management LP had $17.9 million invested in the company at the end of the quarter. Ray Dalio's Bridgewater Associates also made a $11.5 million investment in the stock during the quarter. The other funds with brand new EW positions are Mark Wolfson and Jamie Alexander's Jasper Ridge Partners, Justin John Ferayorni's Tamarack Capital Management, and Mario Gabelli's GAMCO Investors.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Edwards Lifesciences Corporation (NYSE:EW) but similarly valued. We will take a look at China Petroleum & Chemical Corp (NYSE:SNP), Lam Research Corporation (NASDAQ:LRCX), Waste Management, Inc. (NYSE:WM), Aon plc (NYSE:AON), The Charles Schwab Corporation (NYSE:SCHW), PNC Financial Services Group Inc. (NYSE:PNC), and Petroleo Brasileiro S.A. - Petrobras (NYSE:PBR). This group of stocks' market values match EW's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNP,8,168584,-2 LRCX,55,2247749,-7 WM,38,2845066,-1 AON,52,5410949,-5 SCHW,53,3280246,-18 PNC,37,740197,-15 PBR,31,1006663,2 Average,39.1,2242779,-6.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.1 hedge funds with bullish positions and the average amount invested in these stocks was $2243 million. That figure was $1123 million in EW's case. Lam Research Corporation (NASDAQ:LRCX) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 8 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 74.6. 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately EW wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EW were disappointed as the stock returned 7% since the end of September (through 12/8) 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.
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Disclosure: None. This article was originally published at Insider Monkey.