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 Illumina, Inc. (NASDAQ:ILMN) based on those filings.
Illumina, Inc. (NASDAQ:ILMN) has experienced a decrease in hedge fund sentiment in recent months. Our calculations also showed that ILMN isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
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 51 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.
[caption id="attachment_189672" align="aligncenter" width="400"] David Blood of Generation Investment Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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. With all of this in mind let's review the key hedge fund action encompassing Illumina, Inc. (NASDAQ:ILMN).
What have hedge funds been doing with Illumina, Inc. (NASDAQ:ILMN)?
At the end of the first quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ILMN over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Generation Investment Management was the largest shareholder of Illumina, Inc. (NASDAQ:ILMN), with a stake worth $457.5 million reported as of the end of September. Trailing Generation Investment Management was Select Equity Group, which amassed a stake valued at $187.3 million. GuardCap Asset Management, D E Shaw, and Citadel Investment Group 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 GuardCap Asset Management allocated the biggest weight to Illumina, Inc. (NASDAQ:ILMN), around 7.22% of its 13F portfolio. Generation Investment Management is also relatively very bullish on the stock, designating 3.25 percent of its 13F equity portfolio to ILMN.
Due to the fact that Illumina, Inc. (NASDAQ:ILMN) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there were a few funds who were dropping their entire stakes last quarter. It's worth mentioning that Lone Pine Capital dropped the biggest position of all the hedgies monitored by Insider Monkey, totaling close to $172.4 million in stock. Andreas Halvorsen's fund, Viking Global, also dumped its stock, about $135.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 9 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Illumina, Inc. (NASDAQ:ILMN). These stocks are Moody's Corporation (NYSE:MCO), American Electric Power Company, Inc. (NYSE:AEP), Waste Management, Inc. (NYSE:WM), and Edwards Lifesciences Corporation (NYSE:EW). All of these stocks' market caps are closest to ILMN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MCO,50,8552785,1 AEP,38,1070882,4 WM,40,2563267,8 EW,49,1405375,4 Average,44.25,3398077,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 44.25 hedge funds with bullish positions and the average amount invested in these stocks was $3398 million. That figure was $1131 million in ILMN's case. Moody's Corporation (NYSE:MCO) is the most popular stock in this table. On the other hand American Electric Power Company, Inc. (NYSE:AEP) is the least popular one with only 38 bullish hedge fund positions. Compared to these stocks Illumina, Inc. (NASDAQ:ILMN) is even less popular than AEP. Hedge funds clearly dropped the ball on ILMN as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on ILMN as the stock returned 32.9% so far in the second quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.