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Hedge Funds Have Never Been Less Bullish On Novartis AG (NVS)

Asma UL Husna
·6 mins read

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Novartis AG (NYSE:NVS) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Novartis AG (NYSE:NVS) was in 21 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 34. NVS investors should pay attention to a decrease in hedge fund interest lately. There were 30 hedge funds in our database with NVS holdings at the end of March. Our calculations also showed that NVS 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

FISHER ASSET MANAGEMENT
FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 lithium company which could also benefit from the electric car adoption. 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. 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 to get excerpts of these letters in your inbox. With all of this in mind let's go over the key hedge fund action surrounding Novartis AG (NYSE:NVS).

Hedge fund activity in Novartis AG (NYSE:NVS)

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -30% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in NVS a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Fisher's Fisher Asset Management has the largest position in Novartis AG (NYSE:NVS), worth close to $771 million, comprising 0.8% of its total 13F portfolio. The second most bullish fund is Renaissance Technologies, with a $724.5 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism include Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Israel Englander's Millennium Management and Jeremy Green's Redmile Group. In terms of the portfolio weights assigned to each position Bourgeon Capital allocated the biggest weight to Novartis AG (NYSE:NVS), around 1.87% of its 13F portfolio. Osterweis Capital Management is also relatively very bullish on the stock, dishing out 1.73 percent of its 13F equity portfolio to NVS.

Seeing as Novartis AG (NYSE:NVS) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of fund managers who sold off their entire stakes in the second quarter. Interestingly, Louis Bacon's Moore Global Investments said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, worth about $9.1 million in stock. Ken Griffin's fund, Citadel Investment Group, also dropped its stock, about $6.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds in the second quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Novartis AG (NYSE:NVS) but similarly valued. These stocks are Cisco Systems, Inc. (NASDAQ:CSCO), Merck & Co., Inc. (NYSE:MRK), The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), PepsiCo, Inc. (NASDAQ:PEP), Pfizer Inc. (NYSE:PFE), and Comcast Corporation (NASDAQ:CMCSA). All of these stocks' market caps are closest to NVS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CSCO,59,2904558,1 MRK,76,4854278,-2 KO,59,20093024,4 XOM,53,1114752,-12 PEP,53,3156792,-4 PFE,66,2139163,-1 CMCSA,80,7207135,-3 Average,63.7,5924243,-2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 63.7 hedge funds with bullish positions and the average amount invested in these stocks was $5924 million. That figure was $1943 million in NVS's case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Exxon Mobil Corporation (NYSE:XOM) is the least popular one with only 53 bullish hedge fund positions. Compared to these stocks Novartis AG (NYSE:NVS) is even less popular than XOM. Our overall hedge fund sentiment score for NVS is 14.5. 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. Hedge funds dodged a bullet by taking a bearish stance towards NVS. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September but managed to beat the market by 19.3 percentage points. Unfortunately NVS wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); NVS investors were disappointed as the stock returned -0.4% in the third quarter 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 most of these stocks already outperformed the market so far in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.

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