Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Smith & Nephew plc (NYSE:SNN).
Is Smith & Nephew plc (NYSE:SNN) an outstanding stock to buy now? Hedge funds are getting less optimistic. The number of bullish hedge fund positions shrunk by 8 lately. Our calculations also showed that SNN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SNN was in 6 hedge funds' portfolios at the end of September. There were 14 hedge funds in our database with SNN holdings at the end of the previous quarter. Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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_338182" align="alignnone" width="2480"] Harold Levy of Iridian Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's take a peek at the latest hedge fund action encompassing Smith & Nephew plc (NYSE:SNN).
What does smart money think about Smith & Nephew plc (NYSE:SNN)?
Heading into the fourth quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -57% from the second quarter of 2019. By comparison, 9 hedge funds held shares or bullish call options in SNN 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.
Among these funds, Arrowstreet Capital held the most valuable stake in Smith & Nephew plc (NYSE:SNN), which was worth $159 million at the end of the third quarter. On the second spot was Iridian Asset Management which amassed $124 million worth of shares. Pura Vida Investments, Millennium Management, and Point72 Asset 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 Pura Vida Investments allocated the biggest weight to Smith & Nephew plc (NYSE:SNN), around 3.04% of its 13F portfolio. Iridian Asset Management is also relatively very bullish on the stock, dishing out 1.94 percent of its 13F equity portfolio to SNN.
Since Smith & Nephew plc (NYSE:SNN) has witnessed a decline in interest from hedge fund managers, logic holds that there is a sect of fund managers that slashed their full holdings last quarter. Interestingly, Renaissance Technologies cut the largest investment of all the hedgies monitored by Insider Monkey, worth about $9 million in stock. David E. Shaw's fund, D E Shaw, also said goodbye to its stock, about $4.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 8 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Smith & Nephew plc (NYSE:SNN) but similarly valued. We will take a look at Pioneer Natural Resources Company (NYSE:PXD), AMETEK, Inc. (NYSE:AME), Corteva, Inc. (NYSE:CTVA), and Tencent Music Entertainment Group (NYSE:TME). This group of stocks' market values match SNN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PXD,47,1014267,-1 AME,29,963376,-2 CTVA,35,457542,-1 TME,15,378566,4 Average,31.5,703438,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $703 million. That figure was $298 million in SNN's case. Pioneer Natural Resources Company (NYSE:PXD) is the most popular stock in this table. On the other hand Tencent Music Entertainment Group (NYSE:TME) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Smith & Nephew plc (NYSE:SNN) is even less popular than TME. Hedge funds dodged a bullet by taking a bearish stance towards SNN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SNN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SNN investors were disappointed as the stock returned -6.4% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.