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Were Hedge Funds Right About Bristol Myers Squibb Company (BMY)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has ended, let’s examine the smart money sentiment towards Bristol Myers Squibb Company (NYSE:BMY).

Is Bristol Myers Squibb Company (NYSE:BMY) a good investment today? The best stock pickers were betting on the stock. The number of bullish hedge fund bets increased by 10 lately. Bristol Myers Squibb Company (NYSE:BMY) was in 136 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics was previously 126. This means the bullish number of hedge fund positions in this stock currently reached a new all time high. Our calculations also showed that BMY ranked 10th 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 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 S&P 500 ETFs by 58 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 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.

David Siegel of Two Sigma Advisors
David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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. Keeping this in mind let's take a glance at the recent hedge fund action encompassing Bristol Myers Squibb Company (NYSE:BMY).

How are hedge funds trading Bristol Myers Squibb Company (NYSE:BMY)?

Heading into the third quarter of 2020, a total of 136 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. By comparison, 65 hedge funds held shares or bullish call options in BMY a year ago. So, let's examine 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, Renaissance Technologies, founded by Jim Simons, holds the largest position in Bristol Myers Squibb Company (NYSE:BMY). Renaissance Technologies has a $2.5576 billion position in the stock, comprising 2.2% of its 13F portfolio. Coming in second is Citadel Investment Group, led by Ken Griffin, holding a $354.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish consist of John Overdeck and David Siegel's Two Sigma Advisors, Rajiv Jain's GQG Partners and Farallon Capital. In terms of the portfolio weights assigned to each position Birchview Capital allocated the biggest weight to Bristol Myers Squibb Company (NYSE:BMY), around 28.16% of its 13F portfolio. Copernicus Capital Management is also relatively very bullish on the stock, earmarking 11.05 percent of its 13F equity portfolio to BMY.

As aggregate interest increased, specific money managers were leading the bulls' herd. GQG Partners, managed by Rajiv Jain, initiated the most outsized position in Bristol Myers Squibb Company (NYSE:BMY). GQG Partners had $220.9 million invested in the company at the end of the quarter. Farallon Capital also initiated a $213.2 million position during the quarter. The other funds with new positions in the stock are Robert Pohly's Samlyn Capital, David Costen Haley's HBK Investments, and Lawrence Hawkins's Prosight Capital.

Let's now review hedge fund activity in other stocks similar to Bristol Myers Squibb Company (NYSE:BMY). These stocks are T-Mobile US, Inc. (NASDAQ:TMUS), Sanofi (NASDAQ:SNY), Broadcom Inc (NASDAQ:AVGO), BHP Group (NYSE:BHP), Danaher Corporation (NYSE:DHR), Medtronic plc (NYSE:MDT), and Royal Dutch Shell plc (NYSE:RDS). This group of stocks' market values resemble BMY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TMUS,113,7158311,48 SNY,24,1220415,9 AVGO,59,2378523,9 BHP,16,761158,-2 DHR,76,4287603,13 MDT,58,2705363,-1 RDS,34,1164812,6 Average,54.3,2810884,11.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 54.3 hedge funds with bullish positions and the average amount invested in these stocks was $2811 million. That figure was $6606 million in BMY's case. T-Mobile US, Inc. (NASDAQ:TMUS) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Bristol Myers Squibb Company (NYSE:BMY) is more popular among hedge funds. Our overall hedge fund sentiment score for BMY is 95.5 (out of 100). 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. 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 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Unfortunately BMY wasn't nearly as successful as these 10 stocks and hedge funds that were betting on BMY were disappointed as the stock returned 5.7% since the end of the second quarter (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should diversify and invest in the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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