We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards AbbVie Inc (NYSE:ABBV) and determine whether hedge funds skillfully traded this stock.
Is AbbVie Inc (NYSE:ABBV) a buy, sell, or hold? Prominent investors were becoming hopeful. The number of long hedge fund positions improved by 8 lately. Our calculations also showed that ABBV ranks #31 in terms of popularity and barely missed to be placed in our list of the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). AbbVie Inc (NYSE:ABBV) was in 89 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 81. This means the bullish number of hedge fund positions in this stock currently is at its all time high. There were 81 hedge funds in our database with ABBV positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out ideas like this under-the-radar stock to identify the next tenbagger. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let's analyze the key hedge fund action regarding AbbVie Inc (NYSE:ABBV).
What have hedge funds been doing with AbbVie Inc (NYSE:ABBV)?
At the end of the second quarter, a total of 89 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 55 hedge funds with a bullish position in ABBV a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in AbbVie Inc (NYSE:ABBV), which was worth $1867.6 million at the end of the third quarter. On the second spot was Orbis Investment Management which amassed $1035.2 million worth of shares. AQR Capital Management, Two Sigma Advisors, and Farallon Capital 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 Copernicus Capital Management allocated the biggest weight to AbbVie Inc (NYSE:ABBV), around 11.84% of its 13F portfolio. Orbis Investment Management is also relatively very bullish on the stock, earmarking 7.79 percent of its 13F equity portfolio to ABBV.
Consequently, key hedge funds have jumped into AbbVie Inc (NYSE:ABBV) headfirst. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most valuable position in AbbVie Inc (NYSE:ABBV). Adage Capital Management had $198.6 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also initiated a $60.6 million position during the quarter. The other funds with brand new ABBV positions are Richard Gerson and Navroz D. Udwadia's Falcon Edge Capital, Ric Dillon's Diamond Hill Capital, and John W. Rende's Copernicus Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as AbbVie Inc (NYSE:ABBV) but similarly valued. We will take a look at Oracle Corporation (NYSE:ORCL), salesforce.com, inc. (NYSE:CRM), SAP SE (NYSE:SAP), Chevron Corporation (NYSE:CVX), Abbott Laboratories (NYSE:ABT), Eli Lilly and Company (NYSE:LLY), and ASML Holding N.V. (NASDAQ:ASML). This group of stocks' market values are closest to ABBV's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ORCL,49,2312027,1 CRM,107,9769139,-10 SAP,16,1253641,1 CVX,50,1585417,-3 ABT,67,3504346,5 LLY,51,2161323,8 ASML,25,1961320,-5 Average,52.1,3221030,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 52.1 hedge funds with bullish positions and the average amount invested in these stocks was $3.2 billion. That figure was $6.2 billion in ABBV's case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 16 bullish hedge fund positions. AbbVie Inc (NYSE:ABBV) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ABBV is 80.1. 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 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately ABBV wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ABBV were disappointed as the stock returned -2.6% during the same time period 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 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.