The market has been volatile in the last 6 months as the Federal Reserve continued its rate hikes and then abruptly reversed its stance and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q4 and the beginning of Q1. In this article, we analyze what the smart money thinks of Celgene Corporation (NASDAQ:CELG) and find out how it is affected by hedge funds' moves.
Celgene Corporation (NASDAQ:CELG) was in 101 hedge funds' portfolios at the end of March. CELG has seen a huge increase in hedge fund interest recently. There were 58 hedge funds in our database with CELG positions at the end of the previous quarter. This is usually a very bullish signal. Another stock, Disney (DIS) saw a huge jump in hedge fund sentiment during the first quarter and it returned nearly 20% so far in the second quarter.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Let's take a look at the latest hedge fund action encompassing Celgene Corporation (NASDAQ:CELG).
What does the smart money think about Celgene Corporation (NASDAQ:CELG)?
At the end of the first quarter, a total of 101 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 74% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CELG over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Orbis Investment Management held the most valuable stake in Celgene Corporation (NASDAQ:CELG), which was worth $1311 million at the end of the first quarter. On the second spot was Pentwater Capital Management which amassed $923.1 million worth of shares. Moreover, Adage Capital Management, Farallon Capital, and D E Shaw were also bullish on Celgene Corporation (NASDAQ:CELG), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Pentwater Capital Management, managed by Matthew Halbower, created the most valuable position in Celgene Corporation (NASDAQ:CELG). Pentwater Capital Management had $923.1 million invested in the company at the end of the quarter. Thomas Steyer's Farallon Capital also initiated a $795.3 million position during the quarter. The following funds were also among the new CELG investors: David Abrams's Abrams Capital Management, Seth Klarman's Baupost Group, and John Paulson's Paulson & Co.
Let's now take a look at hedge fund activity in other stocks similar to Celgene Corporation (NASDAQ:CELG). These stocks are Intuitive Surgical, Inc. (NASDAQ:ISRG), The TJX Companies, Inc. (NYSE:TJX), Duke Energy Corporation (NYSE:DUK), and The Bank of Nova Scotia (NYSE:BNS). This group of stocks' market valuations are similar to CELG's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ISRG,40,1598543,-9 TJX,54,3003962,-4 DUK,26,1113817,9 BNS,14,518832,0 Average,33.5,1558789,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1559 million. That figure was $11077 million in CELG's case. The TJX Companies, Inc. (NYSE:TJX) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Celgene Corporation (NASDAQ:CELG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on CELG, though not to the same extent, as the stock returned 0.2% during the same period and outperformed the market as well. Unfortunately, hedge fund interest in Celgene jumped due to BMY's impending acquisition of the stock rather a dramatic change in the fundamentals of the stock. That's probably why we didn't see huge gains in Celgene shares the way we saw in Disney stock.
Disclosure: None. This article was originally published at Insider Monkey.