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 Hologic, Inc. (NASDAQ:HOLX) and determine whether hedge funds skillfully traded this stock.
Hologic, Inc. (NASDAQ:HOLX) investors should pay attention to an increase in support from the world's most elite money managers lately. Hologic, Inc. (NASDAQ:HOLX) was in 46 hedge funds' portfolios at the end of June. The all time high for this statistics is 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 41 hedge funds in our database with HOLX holdings at the end of March. Our calculations also showed that HOLX isn't among 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). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a 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 stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Keeping this in mind let's take a look at the new hedge fund action encompassing Hologic, Inc. (NASDAQ:HOLX).
What have hedge funds been doing with Hologic, Inc. (NASDAQ:HOLX)?
At the end of the second quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HOLX over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Hologic, Inc. (NASDAQ:HOLX), with a stake worth $292.2 million reported as of the end of September. Trailing Citadel Investment Group was D E Shaw, which amassed a stake valued at $129.3 million. Glenview Capital, Two Sigma Advisors, and AQR Capital Management 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 Iron Triangle Partners allocated the biggest weight to Hologic, Inc. (NASDAQ:HOLX), around 7.18% of its 13F portfolio. Tamarack Capital Management is also relatively very bullish on the stock, earmarking 5.16 percent of its 13F equity portfolio to HOLX.
As one would reasonably expect, key money managers were leading the bulls' herd. Deerfield Management, managed by James E. Flynn, created the biggest position in Hologic, Inc. (NASDAQ:HOLX). Deerfield Management had $78.1 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley's Polar Capital also initiated a $59.4 million position during the quarter. The following funds were also among the new HOLX investors: Aaron Cowen's Suvretta Capital Management, Christopher James's Partner Fund Management, and Kevin Molloy's Iron Triangle Partners.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Hologic, Inc. (NASDAQ:HOLX) but similarly valued. We will take a look at BeiGene, Ltd. (NASDAQ:BGNE), CarMax Inc (NYSE:KMX), Broadridge Financial Solutions, Inc. (NYSE:BR), SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), Ryanair Holdings plc (NASDAQ:RYAAY), Domino's Pizza, Inc. (NYSE:DPZ), and ViacomCBS Inc. (NASDAQ:VIAC). This group of stocks' market valuations match HOLX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BGNE,13,3356980,2 KMX,46,1420392,9 BR,24,193920,-5 SSNC,65,2274258,8 RYAAY,21,746925,-1 DPZ,47,1746559,2 VIAC,45,1153093,-9 Average,37.3,1556018,0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.3 hedge funds with bullish positions and the average amount invested in these stocks was $1556 million. That figure was $1547 million in HOLX's case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand BeiGene, Ltd. (NASDAQ:BGNE) is the least popular one with only 13 bullish hedge fund positions. Hologic, Inc. (NASDAQ:HOLX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HOLX is 71.7. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately HOLX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on HOLX were disappointed as the stock returned 4.8% 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.