U.S. markets closed

Were Hedge Funds Right About Edwards Lifesciences Corporation (EW)?

Abigail Fisher

Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Edwards Lifesciences Corporation (NYSE:EW).

Edwards Lifesciences Corporation (NYSE:EW) was in 45 hedge funds' portfolios at the end of December. EW investors should be aware of an increase in hedge fund interest recently. There were 36 hedge funds in our database with EW positions at the end of the previous quarter. Our calculations also showed that EW isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_30621" align="aligncenter" width="399"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to review the fresh hedge fund action surrounding Edwards Lifesciences Corporation (NYSE:EW).

How are hedge funds trading Edwards Lifesciences Corporation (NYSE:EW)?

Heading into the first quarter of 2020, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in EW 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.

The largest stake in Edwards Lifesciences Corporation (NYSE:EW) was held by Ako Capital, which reported holding $193.3 million worth of stock at the end of September. It was followed by AQR Capital Management with a $164.3 million position. Other investors bullish on the company included Two Sigma Advisors, Arrowstreet Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Ako Capital allocated the biggest weight to Edwards Lifesciences Corporation (NYSE:EW), around 4.16% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, designating 2.71 percent of its 13F equity portfolio to EW.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Ako Capital, managed by Nicolai Tangen, established the largest position in Edwards Lifesciences Corporation (NYSE:EW). Ako Capital had $193.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $127.3 million position during the quarter. The following funds were also among the new EW investors: Renaissance Technologies, Benjamin A. Smith's Laurion Capital Management, and Matthew Tewksbury's Stevens Capital Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Edwards Lifesciences Corporation (NYSE:EW) but similarly valued. These stocks are Humana Inc (NYSE:HUM), Waste Management, Inc. (NYSE:WM), Aon plc (NYSE:AON), and Kinder Morgan Inc (NYSE:KMI). This group of stocks' market values are closest to EW's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HUM,75,4982047,10 WM,32,3261844,-20 AON,51,2627235,6 KMI,40,1360313,2 Average,49.5,3057860,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 49.5 hedge funds with bullish positions and the average amount invested in these stocks was $3058 million. That figure was $1283 million in EW's case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Waste Management, Inc. (NYSE:WM) is the least popular one with only 32 bullish hedge fund positions. Edwards Lifesciences Corporation (NYSE:EW) is not the least popular stock in this group but hedge fund interest is still below average. 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on EW, though not to the same extent, as the stock returned -10.3% during the same time period and outperformed the market. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

Related Content