The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Sanofi (NASDAQ:SNY) from the perspective of those elite funds.
Sanofi (NASDAQ:SNY) was in 23 hedge funds' portfolios at the end of the fourth quarter of 2018. SNY has experienced a decrease in support from the world's most elite money managers in recent months. There were 24 hedge funds in our database with SNY positions at the end of the previous quarter. Our calculations also showed that SNY isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
[caption id="attachment_191689" align="aligncenter" width="450"] Francis Chou of Chou Associates Management[/caption]
We're going to take a glance at the recent hedge fund action encompassing Sanofi (NASDAQ:SNY).
Hedge fund activity in Sanofi (NASDAQ:SNY)
Heading into the first quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in SNY over the last 14 quarters. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the biggest position in Sanofi (NASDAQ:SNY). Fisher Asset Management has a $696.3 million position in the stock, comprising 1% of its 13F portfolio. Sitting at the No. 2 spot is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $28.2 million position; 0.1% of its 13F portfolio is allocated to the stock. Other members of the smart money that hold long positions comprise Steve Cohen's Point72 Asset Management, Kamran Moghtaderi's Eversept Partners and Francis Chou's Chou Associates Management.
Because Sanofi (NASDAQ:SNY) has witnessed declining sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of fund managers who were dropping their entire stakes heading into Q3. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management sold off the biggest stake of the 700 funds monitored by Insider Monkey, totaling an estimated $17.7 million in call options, and Israel Englander's Millennium Management was right behind this move, as the fund sold off about $11.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q3.
Let's check out hedge fund activity in other stocks similar to Sanofi (NASDAQ:SNY). We will take a look at BHP Group (NYSE:BBL), salesforce.com, inc. (NYSE:CRM), Philip Morris International Inc. (NYSE:PM), and Broadcom Inc (NASDAQ:AVGO). All of these stocks' market caps are closest to SNY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBL,15,713874,-1 CRM,99,5077847,13 PM,48,3023229,7 AVGO,52,2932376,3 Average,53.5,2936832,5.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 53.5 hedge funds with bullish positions and the average amount invested in these stocks was $2937 million. That figure was $847 million in SNY's case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand BHP Group (NYSE:BBL) is the least popular one with only 15 bullish hedge fund positions. Sanofi (NASDAQ:SNY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately SNY wasn't in this group. Hedge funds that bet on SNY were disappointed as the stock returned 3.9% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.