It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Abbott Laboratories (NYSE:ABT).
Is Abbott Laboratories (NYSE:ABT) a bargain? The smart money is becoming less confident. The number of long hedge fund bets were trimmed by 1 recently. Our calculations also showed that abt isn't among the 30 most popular stocks among hedge funds. ABT was in 50 hedge funds' portfolios at the end of the first quarter of 2019. There were 51 hedge funds in our database with ABT positions at the end of the previous quarter.
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 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.
We're going to take a look at the latest hedge fund action encompassing Abbott Laboratories (NYSE:ABT).
How have hedgies been trading Abbott Laboratories (NYSE:ABT)?
At Q1's end, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from the fourth quarter of 2018. By comparison, 51 hedge funds held shares or bullish call options in ABT a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the biggest position in Abbott Laboratories (NYSE:ABT). Diamond Hill Capital has a $557.6 million position in the stock, comprising 3.1% of its 13F portfolio. Coming in second is Ken Griffin of Citadel Investment Group, with a $191.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism encompass Cliff Asness's AQR Capital Management, Phill Gross and Robert Atchinson's Adage Capital Management and Brian Ashford-Russell and Tim Woolley's Polar Capital.
Because Abbott Laboratories (NYSE:ABT) has witnessed bearish sentiment from hedge fund managers, it's easy to see that there was a specific group of money managers that slashed their positions entirely by the end of the third quarter. At the top of the heap, Christopher James's Partner Fund Management said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $82.8 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund sold off about $6.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Abbott Laboratories (NYSE:ABT) but similarly valued. We will take a look at BHP Group (NYSE:BHP), SAP SE (NYSE:SAP), Philip Morris International Inc. (NYSE:PM), and NIKE, Inc. (NYSE:NKE). This group of stocks' market valuations resemble ABT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BHP,15,637521,0 SAP,8,1173668,-6 PM,43,3989796,-5 NKE,53,1767916,-8 Average,29.75,1892225,-4.75 [/table]
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As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $1892 million. That figure was $1860 million in ABT's case. NIKE, Inc. (NYSE:NKE) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 8 bullish hedge fund positions. Abbott Laboratories (NYSE:ABT) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately ABT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ABT were disappointed as the stock returned -3.9% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.