Did Hedge Funds Make The Right Call On Elanco Animal Health Incorporated (ELAN) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtElanco Animal Health Incorporated (NYSE:ELAN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Elanco Animal Health Incorporated (NYSE:ELAN) the right pick for your portfolio? The smart money was becoming more confident. The number of bullish hedge fund positions moved up by 3 lately. Our calculations also showed that ELAN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ELAN was in 26 hedge funds’ portfolios at the end of March. There were 23 hedge funds in our database with ELAN holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.


James Dinan of York Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the key hedge fund action surrounding Elanco Animal Health Incorporated (NYSE:ELAN).

How are hedge funds trading Elanco Animal Health Incorporated (NYSE:ELAN)?

At the end of the first quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ELAN over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Elanco Animal Health Incorporated (NYSE:ELAN) was held by D E Shaw, which reported holding $71.2 million worth of stock at the end of September. It was followed by Sirios Capital Management with a $45.8 million position. Other investors bullish on the company included Alyeska Investment Group, Crescent Park Management, and York Capital Management. In terms of the portfolio weights assigned to each position Crescent Park Management allocated the biggest weight to Elanco Animal Health Incorporated (NYSE:ELAN), around 10.19% of its 13F portfolio. Sirios Capital Management is also relatively very bullish on the stock, dishing out 4.05 percent of its 13F equity portfolio to ELAN.

As industrywide interest jumped, some big names have jumped into Elanco Animal Health Incorporated (NYSE:ELAN) headfirst. York Capital Management, managed by James Dinan, created the most valuable position in Elanco Animal Health Incorporated (NYSE:ELAN). York Capital Management had $28.9 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $11.1 million position during the quarter. The other funds with brand new ELAN positions are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Alec Litowitz and Ross Laser’s Magnetar Capital, and Renaissance Technologies.

Let’s go over hedge fund activity in other stocks similar to Elanco Animal Health Incorporated (NYSE:ELAN). We will take a look at NICE Ltd (NASDAQ:NICE), Gartner Inc (NYSE:IT), Pinterest, Inc. (NYSE:PINS), and GDS Holdings Limited (NASDAQ:GDS). This group of stocks’ market valuations resemble ELAN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NICE 22 373814 3
IT 32 973145 6
PINS 38 410292 1
GDS 41 1618404 7
Average 33.25 843914 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $844 million. That figure was $341 million in ELAN’s case. GDS Holdings Limited (NASDAQ:GDS) is the most popular stock in this table. On the other hand NICE Ltd (NASDAQ:NICE) is the least popular one with only 22 bullish hedge fund positions. Elanco Animal Health Incorporated (NYSE:ELAN) 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately ELAN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ELAN investors were disappointed as the stock returned -4.2% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out 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.