With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Smith & Nephew plc (NYSE:SNN).
Smith & Nephew plc (NYSE:SNN) was in 13 hedge funds' portfolios at the end of the first quarter of 2019. SNN investors should pay attention to an increase in enthusiasm from smart money recently. There were 11 hedge funds in our database with SNN positions at the end of the previous quarter. Our calculations also showed that SNN isn't among the 30 most popular stocks among hedge funds.
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.
[caption id="attachment_758442" align="aligncenter" width="450"] Michael Platt of Bluecrest Capital Management[/caption]
Let's check out the new hedge fund action surrounding Smith & Nephew plc (NYSE:SNN).
What have hedge funds been doing with Smith & Nephew plc (NYSE:SNN)?
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SNN over the last 15 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the biggest position in Smith & Nephew plc (NYSE:SNN). Arrowstreet Capital has a $161.3 million position in the stock, comprising 0.4% of its 13F portfolio. The second most bullish fund manager is Fisher Asset Management, managed by Ken Fisher, which holds a $49.8 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish comprise Israel Englander's Millennium Management, and Jim Simons's Renaissance Technologies.
With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Millennium Management, managed by Israel Englander, created the largest call position in Smith & Nephew plc (NYSE:SNN). Millennium Management had $26.1 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $3.6 million position during the quarter. The following funds were also among the new SNN investors: Matthew Hulsizer's PEAK6 Capital Management, Benjamin A. Smith's Laurion Capital Management, and Michael Platt and William Reeves's BlueCrest Capital Mgmt..
Let's also examine hedge fund activity in other stocks similar to Smith & Nephew plc (NYSE:SNN). We will take a look at Church & Dwight Co., Inc. (NYSE:CHD), Expedia Group, Inc. (NASDAQ:EXPE), iQIYI, Inc. (NASDAQ:IQ), and Ameriprise Financial, Inc. (NYSE:AMP). This group of stocks' market values are similar to SNN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHD,24,338436,-6 EXPE,32,2091227,-7 IQ,22,1039742,-3 AMP,34,861846,2 Average,28,1082813,-3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $1083 million. That figure was $275 million in SNN's case. Ameriprise Financial, Inc. (NYSE:AMP) is the most popular stock in this table. On the other hand iQIYI, Inc. (NASDAQ:IQ) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Smith & Nephew plc (NYSE:SNN) is even less popular than IQ. Hedge funds clearly dropped the ball on SNN as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on SNN as the stock returned 9.8% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.