How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB).
iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) investors should pay attention to an increase in enthusiasm from smart money in recent months. IBB was in 19 hedge funds’ portfolios at the end of September. There were 11 hedge funds in our database with IBB holdings at the end of the previous quarter. At the end of this article we will also compare IBB to other stocks including AerCap Holdings N.V. (NYSE:AER), Staples, Inc. (NASDAQ:SPLS), and Sensata Technologies Holding N.V. (NYSE:ST) to get a better sense of its popularity.
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With all of this in mind, let’s go over the recent action regarding iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB).
What does the smart money think about iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB)?
At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 73% from the previous quarter. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the largest position in iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB). Citadel Investment Group has a $84 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Millennium Management, managed by Israel Englander, which holds a $82.4 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism encompass Stephen V. Raneri’s LionEye Capital Management, and Daniel Gold’s QVT Financial.
As industrywide interest jumped, key money managers have been driving this bullishness. LionEye Capital Management, managed by Stephen V. Raneri, assembled the most outsized position in iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB). LionEye Capital Management had $27.3 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also made a $27 million investment in the stock during the quarter. The other funds with brand new IBB positions are Vishal Bhutani and Joshua Bederman’s Pyrrho Capital Management, Michael Platt and William Reeves’s BlueCrest Capital Mgmt, and Anthony Bozza’s Lakewood Capital Management.
Let’s also examine hedge fund activity in other stocks similar to iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB). These stocks are AerCap Holdings N.V. (NYSE:AER), Staples, Inc. (NASDAQ:SPLS), Sensata Technologies Holding N.V. (NYSE:ST), and Fibria Celulose SA (ADR) (NYSE:FBR). This group of stocks’ market values are closest to IBB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AER | 77 | 2994191 | 0 |
| SPLS | 54 | 1338302 | 7 |
| ST | 28 | 1714303 | -5 |
| FBR | 8 | 49866 | -2 |
As you can see these stocks had an average of 41.75 hedge funds with bullish positions and the average amount invested in these stocks was $1524 million. That figure was $321 million in IBB’s case. AerCap Holdings N.V. (NYSE:AER) is the most popular stock in this table. On the other hand Fibria Celulose SA (ADR) (NYSE:FBR) is the least popular one with only 8 bullish hedge fund positions. iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) 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. In this regard AER might be a better candidate to consider a long position.
